Investing in space: funds, trusts, and ETFs offering a route in

The SpaceX facility in Hawthorne, California, earlier this month. Photo: Michael Yanow/NurPhoto via Getty Images.

Over the past five years or so space exploration has emerged an investment theme, with a small number of funds offering pure-play access and other more generalist equity funds dabbling in this area.

In this article, we explain why the space theme has taken off, and explore different ways to access the theme. 

For investors with tracker funds or exchange-traded funds (ETFs) which invest in the US or globally, the sheer size of Space Exploration Technologies Corp Class A (NASDAQ:SPCX)’ IPO means that it is one of the world’s largest listed companies and will therefore form part of some stock market indices. My colleague Dave Baxter has the details here.

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Why thematic investing is a satellite holding

But first, let’s cover off what thematic investing is and why these specialist funds are best treated as a satellite holding as part of a well-diversified portfolio.

Thematic investing is an attempt to pre-empt future trends and then invest in the sort of companies that will, in theory, benefit.

Thematic funds that are actively managed and operate in a similar way to other active funds, with shares entering and exiting depending on the manager’s conviction and where they are seeing the best opportunities.

A thematic index ETF tracks an index of companies expected to benefit from the same trend. Rather than relying on the stock-picking ability of a fund manager, the investor gains rules-based exposure to companies that meet certain criteria for the theme.

When an index tracking a theme is constructed, companies are usually screened via some sort of revenue requirement.

Thematic funds are typically on the adventurous end of the risk scale. This is certainly the case for funds tapping into the space economy. Given the higher risk, it could be prudent to limit exposure and put specialist funds in the satellite bucket of a well-diversified portfolio.

Why the space theme has taken off

The increased commercialisation of the space economy has been driven by technological advances that mean lower-cost access for entering space and a greater number of satellites being deployed due to reductions in size.

As a report from Peel Hunt points out, in the space shuttle era (1981-2011), it cost around $54,500/kg to launch a payload rocket. However, the advent of reusable rockets, such as SpaceX’s Falcon 9, have sent costs down to circa $2,700/kg.

Peel Hunt says: “Imagine if an airline ticket from London to New York dropped from $2,000 to $200. Suddenly, millions more people would fly. This is what has happened with satellites. Space is no longer the preserve of superpowers: universities, start-ups, and private companies can now afford a ticket.”

Smaller satellites have led to increases in mass production, as well as enabling dozens to be launched on a single rocket.

Peel Hunt adds: “SpaceX regularly launches 20 to 60 satellites at once. This ride-share model splits the rocket cost among many passengers, reducing expense per customer.”

There has been a sharp increase in the number of participants in the space race and the speed of being able to scale has rocketed.

The space economy has the potential to lead to all sorts of commercial applications, particularly in areas such as telecoms and satellites.

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As Peel Hunt points out: “Around three billion people still lack reliable internet. However, it is not feasible to run fibre-optic cables to every remote village or seafaring vessel. Space is the only way to cover everyone.”

Another key growth area that looks here to stay is the surge in demand for space-based intelligence and surveillance on the back of European governments increasing defence spending amid changing priorities in America’s foreign policy.

Space-based communications technology is also becoming more integral to the economy, including through location-enabled apps, such as Deliveroo and Uber Technologies Inc (NYSE:UBER), which make use of global positioning systems (GPS).

In addition, 5G, cloud computing, and artificial intelligence (AI) machine learning, all require ever-bigger transfers of data and these technologies will be increasingly reliant on satellite infrastructure.

Moreover, space tech is being increasingly used to monitor the environment, climate impact, and energy efficiency.

ETF routes

Just days ahead of SpaceX’s much anticipated debut on the stock market, BlackRock and WisdomTree launched ETFs to access the theme. The annual fund fee for both products is 0.5%.

The iShares Space Technologies UCITS ETF (LSE: STRR) offers exposure to the commercialisation 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 ETF’s index incorporates an IPO fast-entry mechanism, allowing qualifying newly listed companies to be included within 10 to 30 days, as opposed to on a quarterly basis.

The WisdomTree Space Economy UCITS ETF (LSE:WSPG) provides exposure to the space economy across four areas: launches and infrastructure, commercial space, defence space and emerging technologies. The index the ETF tracks has been created by WisdomTree.

These newcomers join ARK Space Exploration and Innovation ETF (LSE:ARKX) and VanEck Space Innovators ETF (LSE:JEDG), which started trading in March 2021 and June 2022.

The ARK Space Exploration and Innovation ETF describes its approach as providing exposure to “space and defence innovation”, including orbital and sub-orbital aerospace, enabling technologies, and beneficiaries of aerospace activities, such as agriculture, internet access, global positioning system (GPS), construction, and imaging. Its annual charge is 0.75%.

VanEck Space Innovators ETF tracks the largest and most liquid companies in the global space industry. Its yearly fee is 0.55%.

Actively managed exposure

For fund fans, the only pure-play actively managed route at present is investment trust Seraphim Space (LSE:SSIT), which launched in July 2021. It invests in both public and private growth-stage space technology companies. The focus is on companies seeking to develop and commercialise technologies that aim to translate scientific research into practical applications.

Its top holding, ICEYE, accounted for nearly half its portfolio (the net asset value or NAV) at the end of March. It is building a satellite-based information service, providing the world with access to near-real-time imagery from space.

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While it doesn’t own SpaceX, Mark Boggett, chief executive officer at Seraphim Space, said SpaceX’s IPO “could prove transformational, by being a catalyst for generating billions of new capital into the market”.

Since launch, its share price is up 103%, but it has been a very bumpy ride. An investor at launch that sold between August 2022 and August 2024 could have lost 50% or more at certain points. However, those who timed their entry at a low point (such as August 2022) will have gained 292%.

The 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. They are: 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%).

Also offering exposure to the space theme is Molten Ventures Ord (LSE:GROW), which has around 7% of its portfolio in a trio of private companies operating in the area.

Each investment trust will be subject to lock-up restrictions, meaning that there are rules regarding when shares in SpaceX can be sold.

Under those rules, tranches of shares can be sold at certain times.

However, regarding the first opportunity to sell, certain criteria needs 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.

Then, following its first-quarter 2026 results (estimated to be published in October or November 2026), a further 28% is released, regardless of the share price.

From then on, there are various time-based rules for the remaining shares, but at the six-month point after IPO, the ability to sell has no restrictions.

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”. SMT first invested in the firm in December 2018.

In the interview, which was published in March, Burns said: “The next big lever [for SpaceX] could be putting data centres 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.”

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Exposure to SpaceX for private equity trust HarbourVest dates back further to 2009. Richard Hickman, managing director at HVPE, 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.

“It is important to recognise that investing in private companies requires a long-term horizon. Companies are staying private for longer, and value creation tends to be realised over the full course of their growth cycle. However, for investors willing to take that long-term view, this approach can offer exposure to businesses that have the potential to generate significant value as they mature.”