In case you missed it, ARK recently made a huge announcement that it plans on launching the ARK Space Exploration ETF (ARKX) at some point in the near future. It will be the 8th fund in the ARK lineup and certainly fits in with the company's overall theme of identifying next-gen disruptive innovation.
Like most of the largest ARK ETFs, ARKX will be actively-managed. When a new passively-managed ETF launches, we can often look at its underlying index right away to see what the portfolio looks like and how it has performed in the past. With ARKX being actively-managed, however, we're kind of flying blind until the fund actually launches and ARK posts the fund holdings list for the first time.
Still, that doesn't prevent us from trying to forecast what stocks might show up in the fund.
There are already two ETFs in existence that focus on space exploration - the Procure Space ETF (UFO) and the SPDR S&P Kensho Final Frontiers ETF (ROKT). Despite the similarity in their target strategies, the two funds have less than a 20% overlap in assets. That means their management styles and how they go about selecting components for the fund are probably pretty different. But, we can take a look at their portfolio composition to help guide us as well.
We might get a better idea, though, from looking inward at the composition of existing ARK ETFs. This not gives us insight into some of the company's existing high conviction ideas, but the target strategies are probably similar enough that we'll see some crossover in the portfolios. This could especially be the case with the ARK Autonomous Technology & Robotics ETF (ARKQ), which already lists space exploration as one of its target niches.
Keep in mind that what I'm doing here is pure speculation. I have no inside information as to what ARKX will look like. I'm simply trying to follow the trail of clues to give us an idea of what the portfolio MIGHT end up looking like.
The No Brainers
This seems like perhaps the most obvious choice of all. ARK CIO Cathie Wood is perhaps the biggest Tesla (TSLA) bull out there and three ARK ETFs have 10%+ allocations to Tesla stock already. We know that ARK isn't afraid to take huge positions in this company already.
Yes, Tesla is primarily an automaker, but the company's connection to SpaceX makes it a natural fit for ARKX. I think there's a good chance this could ultimately be the fund's top holding.
Richard Branson's company, which seeks to offer suborbital space flights to consumers, seems like another easy choice for this fund. Virgin Galactic (SPCE) has been around since 2004, but has relatively little to show over the past decade and a half. In late 2018, the company was successful in putting pilots into a suborbital space flight and returning them back to earth, but it's probably safe to say that SpaceX is in the lead having already landed a contract with NASA.
Still, the company's space development and name recognition make it an obvious inclusion. SPCE is already a top 20 holding in ARKQ.
The Likely Candidates
Maxar Technologies (MAXR) describes itself as "serving commercial and government missions with trusted Earth intelligence and space infrastructure". It develops satellite and spacecraft systems, robotics, connectivity solutions, space-based communications and platforms. Basically everything someone might need to get up into space. MAXR also has a contract with NASA to develop propulsion systems for the Lunar Gateway project.
MAXR also happens to be the #1 holding right now in both UFO and ROKT. ARK doesn't own MAXR in its funds currently, but it would undeniably be a perfect fit for a space exploration ETF.
Iridium Communications (IRDM) specializes in satellite communications and worldwide voice & data solutions. Iridium has ties to SpaceX having used the company's Falcon 9 rockets to launch dozens of its satellites into space. In 2019, IRDM won a new contract by the Defense Information Systems Agency (DISA) to continue supporting the U.S. Department of Defense Enhanced Mobile Satellite Service (EMSS) gateway. The contract is valued at $54 million over 4.5 years.
IRDM is already a minor holding in the ARK Innovation ETF (ARKK), but accounts for around 3% of ARKQ. It's also the 2nd largest holding in UFO at more than 6% of assets.
Any company that has been producing rockets and thrusters for space missions over the past several decades is a pretty obvious candidate for a space ETF. Aerojet Rocketdyne Holdings (AJRD) has been doing just that and it was actually the company's rockets that landed the Curiosity spacecraft on the surface of Mars.
AJRD appears in both UFO and ROKT, but in very different quantities. It accounts for just 0.2% of UFO, but 5.5% of ROKT.
A lot of companies in the aerospace & defense sector could show up in ARKX. Teledyne Technologies (TDY) could very well be included as could HEICO Corporation (HEI).
Other names that come to mind that could make the cut are communications specialists Gilat Satellite Networks (GILT) and Loral Space & Communications (LORL).
Best of the Rest
It's hard to get a sense of what ARK will consider exposure to the space exploration industry. Certain ETFs want a company whose sole focus in on a particular theme, while others will include any company that has even ancillary exposure (think Scotts Miracle-Gro being included in the Marijuana ETF (MJ)).
I'm guessing Cathie Wood will take the former approach. That means big industrial names, such as Lockheed Martin (LMT), Northrop Grunman (NOC), Boeing (BA) and Raytheon (RTX) may not show up or be included only in limited quantities.
I would expect ARKX would ultimately be heavy in tech and communication services names with a possible overweight to industrials depending on how ARK wants to approach portfolio construction.