Space, the final frontier.
Although I am more of a Star Trek -Next Generation man, the words of Captain James T. Kirk have captivated human imagination since the 1960s, as an increasingly technological world looked to the stars for new opportunities of exploration, colonization, defence and commerce.
Where the USA and USSR may have raced to achieve superiority largely over defence in the 1960s, today we find ourselves observers of a much different space race – one led by private interest rather than nations, characterised by individuals’ passions and commercial interests.
As institutions and fund managers seek to go where no investor has gone before, we can seek opportunities to get exposure to one of the most ambitious and exciting investment avenues in the market today – the modern space race.
Meet the Players
Space investing does not occur in a vacuum (I’m here all week) – rather, much like the equity market here on land, there are several sectors all based on the dominant commercial interests.
We’ll touch on the major sectors in the market today and try to focus on investible (i.e., listed) opportunities in each.
Spaceflight and Exploration
Spaceflight is primarily involved in developing craft which can deliver human crew to either;
- sub-orbital altitudes (approximately 100km above sea level) for tourism or science expeditions, or
- orbital altitudes (approximately 200km above sea level and beyond) for exploration and observation missions.
As a quick physics lesson, achieving orbital velocity takes a tremendous amount of energy; the goal is to put the craft at the speed which will allow it to remain in constant orbit around Earth – a speed of around 28,000 km/h. This is a delicate balance of calculating trajectory and spin of the earth, air resistance, fuel capacity and weight.
For this reason, the expertise and vehicle construction cost needed to commercialise this practice is much higher than sub-orbital crafts. Since sub-orbital expeditions are shorter missions they require less fuel, the drag created by the atmosphere is actually helpful to help the craft descend and the physics of remaining within the atmosphere is one of the “easier” aspects of rocket science.
There are currently only a few listed operators in the Spaceflight sector, with two currently focusing on the commercial realities of ‘space tourism’; Virgin Galactic (SPCE:NYSE) and Boeing (BA:NYSE). For now, the affordability of these tickets is beyond the reach of most, with Virgin Galactic indicating a cost of USD $250,000 p/ticket and Boeing/NASA indicating that one night’s board upon the International Space Station (ISS) would be charged at a rate of USD $35,000 p/night.
The other is Trimble Navigation (TRMB:NASDAQ), a technology company which uses satellite imagery to improve agricultural outcomes.
Satellites and Freight
Aside from ferrying tourists to the limits of our atmosphere, some of the most immediately monetizable opportunities in space comes from satellite networks and ferrying cargo/crew to either space installations or to other points on Earth.
NASA has partnered with SpaceX, Northrop Grumman and Sierra Nevada Corp. for years to transport cargo to and from the International Space Station, but alas only Northrup (NOC:NYSE) is listed.
SpaceX is the most compelling of the three, with Starlink representing a technological leap forward for humanity and a new frontier for global business models, but for now, Elon Musk’s pet project remains open only to private equity rounds.
However, speaking of billionaire’s space projects, Amazon’s Kuiper internet network is the closest competitor to Starlink, with a plan of 3,236 satellites operating in ‘Low Earth Orbit’ working together to create a global internet service. Amazon (AMZN:NASDAQ) does have a player in the space exploration ring already with unlisted vehicle Blue Origin. However, Kuiper represents a new revenue stream with a goal of “4 billion new customers” using a global broadband service.
A diagram on where the ‘orbits’ (Low earth, Medium Earth and Geostationary) sit and what they are used for is below:
Two other listed companies which are already operating in the global satellite sector are Loral Space & Communications (LORL:NASDAQ) – who hold a 62.7% stake in Telesat (top 3 largest providers of satellite connectivity for consumer entertainment) – and Maxar Technologies, a global leader in satellite imagery and satellite maintenance services.
To slightly misquote Theodore Roosevelt, “Speak softly but carry a big space stick.”
We are not operating quite on the level of the 1960s Space Race, where almost every satellite was designed to have some kind of microwave defence beam or anti-missile capabilities, but there are still initiatives across the globe to enforce interstellar security.
Kratos Defence & Security Solutions (KTOS:NASDAQ) specialises in, and I quote “directed-energy weapons”, unmanned defence systems, missile defence and microwave electronics. Boeing and Lockheed Martin (LMT:NYSE) both have contracts with the U.S Government to develop infrastructure for space defence, with Northrop Grunman also having a large suite of assets designed for defence against missiles launched above the atmosphere to hit long-range targets.
This is a smaller sector than others, since by nature a lot of development will occur in-house with governments or sub-contractors. As a reminder, the U.S founded a space service branch of the armed forces known as the ‘United States Space Force’ – as of Dec 2020, it had received over USD $15 billion in funding, so there is certainly growth in the area.
There are precious few managed investments out there that track space-faring companies, for the simple reason of there are not that many space-faring companies to track.
SPDR S&P Kensho Final Frontiers ETF (ROKT:NYSE) tracks companies that are ‘driving innovation behind the explanation of deep space and deep sea’, with a particular emphasis on space travel and exploration as well as the supply chains associated with developing that infrastructure.
Procure Space ETF (UFO:NASDAQ) tracks a slightly different index, and its stated goal is to invest 80% of the portfolio in companies that receive at least 50% of their revenue or profits through some segment of the space industry. Interestingly they note that though there is no legal definition of “space”, they consider the limit to be 100km above sea level (suborbital altitude).
And of course there is the hotly anticipated ARK Space ETF (which will have the ticker ARXX), due to be launched to the market. Without speculating too much on the potential holdings, if Tesla is to come away with SpaceX shares after its eventual listing, Cathie Wood’s favourite company may make it into another one of her ETFs.
Watch This Space
The wonderful thing about space is the sheer magnitude and multitude of potential projects that we could see within our lifetime.
The below are just some of many ideas which have been proposed by investors, physicists, governments and private interests alike:
- Sky hooks and space elevators: these are networks of orbiting structures acting like conveyor belts that allow space vehicles to latch on to their momentum and breach the atmosphere with ease or propel themselves to distant corners of the solar system before requiring maximum burn of their engines.
- Colonisation of Mars, moons of Jupiter or moons of Saturn: off the back of this, whichever service is in charge of constructing space infrastructure, terraforming and freighting goods back and forth between the planets.
- Dyson swarms: a network of orbiting solar panels around the sun which beam energy back to Earth, effectively creating unlimited renewable energy – this one is probably the furthest away, but one of the most impactful to us as a species.
Although the listed companies offer potential, the runway for new technological development in the coming decades is beyond speculation – we are constantly pushing the frontier of what is possible beyond the bounds of our own planet and investors will see a rapidly developing new sector going into the future.
The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.