The space race is heating up, and with it, the investment opportunities. The commercialization of space has opened up a new frontier for investors, with a range of funds, trusts, and ETFs offering access to this exciting theme. But what makes space investing so compelling, and how can investors get involved? Let's dive in and explore the possibilities.
The Rise of Space Investing
The space economy has been a hot topic in recent years, driven by technological advancements that have made space more accessible and affordable. From reusable rockets to smaller satellites, the cost of entering space has plummeted, opening up a world of opportunities for commercial applications. As Peel Hunt points out, the space shuttle era (1981-2011) saw launch costs of around $54,500/kg, but with the advent of reusable rockets like SpaceX's Falcon 9, costs have dropped to around $2,700/kg. This has led to a surge in the number of participants in the space race, with a sharp increase in the speed of scaling.
The space economy has the potential to lead to all sorts of commercial applications, particularly in areas such as telecoms and satellites. As Peel Hunt notes, around three billion people still lack reliable internet, and space is the only way to cover everyone. Additionally, space-based communications technology is becoming more integral to the economy, with location-enabled apps like Deliveroo and Uber Technologies Inc (NYSE:UBER) relying on global positioning systems (GPS).
ETF Routes
Just days ahead of SpaceX's highly anticipated debut on the stock market, BlackRock and WisdomTree launched ETFs to access the theme. The iShares Space Technologies UCITS ETF (LSE: STRR) offers exposure to the commercialization of space by tracking the STOXX Global Space Satellites and Drones Index, which includes rocket, satellite, and drone manufacturing companies and industry supply chains. Companies in the index derive at least 25% of revenues from space, drone, or satellite-related activities.
The WisdomTree Space Economy UCITS ETF (LSE:WSPG) provides exposure to the space economy across four areas: launches and infrastructure, commercial space, defense space, and emerging technologies. The index the ETF tracks has been created by WisdomTree.
Actively Managed Exposure
For fund fans, the only pure-play actively managed route at present is the Seraphim Space Investment Trust (LSE:SSIT), which launched in July 2021. It invests in both public and private growth-stage space technology companies, with a focus on companies seeking to develop and commercialize technologies that aim to translate scientific research into practical applications.
Seraphim Space's top holding, ICEYE, accounted for nearly half its portfolio (the net asset value or NAV) at the end of March. ICEYE is building a satellite-based information service, providing the world with access to near-real-time imagery from space.
Investment Trusts with Stakes in SpaceX
Seven investment trusts also offer exposure to SpaceX within their portfolios, having built up stakes in it when it was a private company. These trusts include Scottish Mortgage (LSE:SMT) (22% of its portfolio), Edinburgh Worldwide (LSE:EWI) (23%), Baillie Gifford US Growth (LSE:USA) (17%), Schiehallion Fund (LSE:MNTS) (14%), RIT Capital Partners (LSE:RCP) (2.5%), Monks Investment Trust (LSE:MNKS) (2%), and HarbourVest Global Private Equity (LSE:HVPE) (0.7%).
Each investment trust will be subject to lock-up restrictions, meaning that there are rules regarding when shares in SpaceX can be sold. However, regarding the first opportunity to sell, certain criteria need to be met. The terms state that following the publication of SpaceX's second-quarter results (estimated to be published in August or September 2026), pre-existing shareholders can sell up to 20% of their locked-up shares – or 30% (an additional 10%) if the stock is at least 30% above the IPO price at that point.
Fund Manager Views
In an interview with interactive investor earlier this year, Lawrence Burns, deputy fund manager of Scottish Mortgage, said that SpaceX has 'huge potential', but acknowledged that 'it needs to be weighed against the fact that it is now a very large holding in the trust'. Scottish Mortgage first invested in SpaceX in December 2018.
Burns noted that the next big lever for SpaceX could be putting data centers into space, where you get reductions in energy costs because you get solar power and you don't need batteries and so on, and using that to actually deal with some of the compute issues we have here on Earth.
Richard Hickman, managing director at HarbourVest Global Private Equity, said: 'SpaceX is a good example of how retail investors can gain access to innovative, cutting-edge private companies through a listed investment trust structure. Our exposure dates back to 2009, reflecting our long-term approach to backing high-growth businesses early and supporting them through their development.'
In conclusion, the space race is an exciting and rapidly evolving field with significant investment opportunities. Whether you're looking for actively managed exposure or ETF routes, there are plenty of options available for investors to get involved in this exciting theme. However, as with any investment, it's essential to do your research and consider your risk tolerance before diving in.
