Space Investors Need More Than Branson’s Trip to Boost Limp ETFs
(Bloomberg) -- The run-up to Richard Branson’s voyage to the edge of space may have super-charged shares of Virgin Galactic Holdings Inc., but funds following the sector are clearly looking elsewhere for inspiration.
Exchange-traded funds tracking the space industry have faced net outflows for the past two months in a row, according to data compiled by Bloomberg. Even Cathie Wood’s highly anticipated ARK Space Exploration & Innovation ETF (ARKX) has been met with tepid interest after an initial burst of activity after its debut.
Despite the news storm around Branson’s test flight into space, which successfully took off this weekend, the $6.5 trillion industry’s products are more of a mixed picture. Performance -- especially for those funds not heavily exposed to Virgin Galactic’s more than 75% rally this year -- is nothing special. And with hundreds of other ETF options out there to choose from, investors are making more down-to-Earth bets. Shares of Virgin Galactic even tumbled on Monday after the company, piggybacking on the surge of attention, said it may offer as much as $500 million in stock.
“In a way investors are viewing this as more of an initial foray into a new paradigm,” said Eric Freedman, chief investment officer at U.S. Bank Asset Management Group. “People are probably a little bit less focused on it investment-wise because we’re not close to being at scale yet. It’s more a question of, is this something that is truly viable?”
Expectations for the new ARKX fund were high earlier in the year, with the announcement of Wood’s planned launch even lifiting the entire space industry. Although the product already has more than $600 million in assets, a top debut for a 2021 product, it has suffered outflows the past two months.
Part of that is probably due to performance as the fund is up only about 3% since its launch in late March, compared to a 10% rise for the S&P 500 during that time frame. Wood also decided to eliminate her stake in Virgin Galactic as of late May -- missing an 68% rally since then.
For the Procure Space ETF (UFO), which counts Virgin Galactic as its largest holding at 6.5%, the path has been brighter. It’s currently up about 21% this year, versus a nearly 17% rally for the S&P 500. Still, the fund has only taken in $76 million this year, with total assets currently at just $132 million.
Even State Street Corp.’s name recognition hasn’t been enough to boost its SPDR S&P Kensho Final Frontiers ETF (ROKT), which has taken in less than $10 million this year and is underperforming the S&P 500.
“Space as a theme is incredibly exciting, but not nearly as tangible as others such as electric vehicles, cloud computing, or working from home,” said David Mazza, head of product at Direxion. “SPCE is giving back a lot of gains today too.”
Still, it’s likely to be a busy year for space developments, as Amazon.com Inc. founder Jeff Bezos prepares for a space trip next week in a rocket made by Blue Origin, the billionaire’s space company.
“As soon as market participants can envisage commercialized space travel, manufacturing, and mining, money should start to fly in,” said James Pillow, managing director at Moors & Cabot Inc
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