The Space (ETF) Race: UFO, ROKT and ARKX

SPDR S&P Kensho Final Frontiers ETF

• Assets under management: $23.9 million
• Expenses: 0.45%

We'll start with the "oldest" space ETF – but also the least pure in mission.

The SPDR S&P Kensho Final Frontiers ETF (ROKT, $39.91) got its start in October 2018, making it a relative newbie among funds but a grizzled ol' veteran among space ETFs.

But a key detail in the name spills the beans that this isn't a purely space-themed fund: "frontiers." As in plural.

ROKT's tracking index, the S&P Kensho Final Frontiers Index is (emphasis ours) "designed to capture companies whose products and services are driving innovation behind the exploration of deep space and deep sea." The underlying index is actually made up of stocks from two indexes, grabbing components from the S&P Kensho Space Index, as well as the deep sea exploration components of the S&P Kensho Drones Index.

It'd be easy to confuse the resultant 30-stock portfolio with a defense-industry ETF. Roughly two-thirds of assets are wrapped up in aerospace and defense stocks, including top holdings such as Aerojet Rocketdyne Holdings (AJRD, 4.9%), Boeing (BA, 4.7%) and Northrop Grumman (NOC, 4.6%). The rest of the holdings are a smattering of research and consulting services firms (7.9%), industrial conglomerates (4.5%), industrial machinery (3.4%) and a few other industries.

It's always important to understand how an ETF is built, but this is especially the case when a "theme" (such as space) doesn't have enough pure-play stocks to fill the roster. That's because the fund's fortunes could rise and fall on any number of drivers outside the theme. With ROKT, for instance, changes in defense spending will likely have an outsized impact on its holdings.

Learn more about ROKT at the SPDR provider site.

Procure Space ETF

• Assets under management: $129.2 million
• Expenses: 0.75%

The Procure Space ETF (UFO, $28.27) got its start just a few months after ROKT, in April 2019, but it has already accumulated more than five times the assets under management (AUM).

A clever ticket helps, but so, perhaps, does a more targeted focus on space.

The Procure Space ETF tracks an index of stocks that have material exposure to space-related industries. Per UFO's prospectus: "A company's space-related revenue must constitute either (a) a minimum of 20% of the company's total annual revenue, or (b) more than $500 million in annual revenue."

At the moment, Procure boasts that at least 80% of UFO's weight is allocated in stocks that derive a majority of revenues from space-related industries, such as satellite telecommunications, space-based imagery, rocket and satellite manufacturing and operation, and space technology, among others.

Indeed, UFO definitely skews more toward Morgan Stanley's perspective – one that sees satellites producing half if not a majority of space-related growth over the next couple decades. Some 44% of the fund's assets are wrapped up in communication services stocks, including France's Eutelsat (5.2%), U.S. firm Garmin (GRMN, 5.2%) and Japan's Sky Perfect JSAT Group (5.1%).

While the portfolio currently boasts 32 companies, that number could grow as the industry does.

"From the perspective of the S-Network Space Index, the number of companies is not capped at 32," says Micah Walter-Range, the index developer behind the Procure Space ETF. "We have a much larger number of companies that we screen at each semi-annual reconstitution, and whenever one meets all the space-specific and financial criteria (since it is a rules-based index), it is added to the index. We do expect the number of companies to grow over time as more meet the criteria for inclusion.

Comparing these two established space ETFs, Todd Rosenbluth, Head of ETF & Mutual Fund Research for CFRA, says his fund currently favors ROKT "as we find many of the industrials positions, such as L3 Harris Technologies (LHX) and Northrop Grumman attractively valued." He also points out concern for UFO's prospects "because of its higher-risk smaller-cap holdings."

Learn more about UFO at the Procure provider site.

ARK Space Exploration & Innovation ETF

• Assets under management: N/A
• Expenses: 0.75%

The newest entrant in the space-ETF race is the ARK Space Exploration & Innovation ETF (ARKX, N/A), which launched March 30.

This fund comes from Cathie Wood's ARK Invest, which produced several of 2020's best-performing ETFs. The success of Wood's funds brought in a flood of assets, with the firm jumping from about $3.5 billion in AUM to $41.5 billion within a year.

That has made ARKX's launch one of the most anticipated of 2021 – but investors might want to consider peeking under the hood rather than buying on name recognition alone.

"In short, this is a rare example when there's pent up demand for an ETF due to the firm behind it more than the investments inside, such as gold or Bitcoin," Rosenbluth says. "But investors might be surprised with what stocks are inside the portfolio since ARK has discretion to identify the companies that fit the theme and have the highest potential rather than following an index playbook."

ARKX, which aims to hold between 40 and 55 stocks, is an actively managed portfolio helmed by none other than Wood herself. It focus on four types of companies: Those involved in companies that deal in orbital aerospace platforms; those that deal in suborbital aerospace platforms; those that develop technologies used by space exploration-related companies (including 3D printing, robotics and AI, among others); and those that stand to benefit from aerospace activities (including GPS technology, imaging, drones and more).

Some of ARKX's holdings, such as Trimble (TRMB, 8.6%) and L3Harris Technologies (5.1%), are easy enough to explain and can be found in the other space ETFs. Interestingly, Wood gets exposure to 3D printing companies through her own fund, The 3D Printing ETF (PRNT, 6.0%).

But several of ARKX's initial holdings will raise an eyebrow or two. Among them are Netflix (NFLX), Amazon.com (AMZN) and even tractor maker Deere (DE).

"With thematic investing, there's significant room for interpretation by the index provider or active manager," Rosenbluth says. For instance, Cathie Wood tells Cinthia Murphy at ETF.com that China e-commerce play JD.com (JD) makes the cut because of its sophisticated logistics operations, "using drones to especially to help with supply chain management."

"Given ARK's track record of stock picking, we expect many investors are open to a discretionary approach," Rosenbluth says, but adds that, for now, UFO looks to be the most straightforward space ETF of the bunch.

Learn more about ARKX at the ARK Invest provider site.