LMT Lockheed Martin Corp

By Bailey McCann 

Thematic ETFs, exchange-traded funds that focus on specific investment themes, are booming And one of the most-talked-about themes lately is space. There is no shortage of ways to invest in the final frontier.

The classics

Historically, the way to invest in space has been in aerospace and defense ETFs.

Before Elon Musk was shooting cars into orbit, space exploration was a purely governmental affair. Aerospace and defense companies were building the rockets, and many of them still are.

Funds with large positions in companies like Boeing, Lockheed Martin or Northrop Grumman tend to have lower volatility and turnover than funds focused on the newer, high-growth companies that compete in space. Aerospace and defense ETFs come in both actively managed and passive, or index, varieties. On the passive side, iShares U.S. Aerospace & Defense ETF (ITA) and SPDR S&P Aerospace & Defense ETF (XAR) offer broad exposure to the old guard of companies in this sector and low turnover. ITA has an expense ratio of 0.44% and XAR 0.35%.

On the active side, the leveraged fund Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN) is designed for short-term investing. This fund's goal is to provide triple the daily return of the Dow Jones U.S. Select Aerospace & Defense Index; but it can also triple the losses if the market goes the other way. You'll also have to pay up for it: With an expense ratio of 0.99%, DFEN is more expensive than an unleveraged ETF. Leveraged ETFs have grown in popularity with investors in recent years, but it is best to work with your financial adviser to determine whether a short-term fund is best for your thematic investment goals.

The innovators

The space industry is still small relative to other parts of the economy. But a number of high-profile private and listed companies have emerged recently, with both a public-sector and consumer focus on space -- including Mr. Musk's SpaceX, Jeff Bezos' Blue Origin, and Virgin Galactic, founded by Richard Branson.

Even companies like Dish Network have a significant investment in space through their use of low-orbit satellites to enhance television and internet service. The launch of the U.S. Space Force in 2019 has also opened a new avenue for government contracts for a broader range of companies.

Two SPDR funds will give you passive or index-fund access to the innovators -- SPDR S&P Kensho Future Security ETF (FITE) and SPDR S&P Kensho Final Frontiers ETF (ROKT).

FITE has an expense ratio of 0.45% and invests in companies that are focused on new areas of national-security importance, including space. FITE is a bit of a combo platter in that it offers exposure to companies that will respond to many of the mandates of the Space Force. The fund has a mix of investments in aerospace and defense, cybersecurity, drone development -- a range of companies that are going to have a space tie-in even if they aren't making rockets or supplying parts for rockets.

ROKT, meanwhile, is not a pure space play. The fund invests in companies that explore "deep space and the deep sea," according to its fact sheet. The fund's current investment weighting is about 66% aerospace and defense (or space), and 34% research, industrial materials and other components used in space and deep-sea exploration -- companies such as Hexcel Corp., which makes high-performance composite materials and other components used in both types of exploration. The fund has an expense ratio of 0.45%.

Procure Space ETF (UFO) from ProcureAM offers the most direct exposure to space innovators. UFO invests only in companies that derive a majority of their revenue from space. You'll get access to Virgin Galactic in UFO, but also Dish, Sirius XM and Weathernews -- companies with significant investments in satellites for consumer use. UFO is a bit pricier with an expense ratio of 0.75% and does invest in smaller space-focused companies. which may be more volatile.

Finally, the newest entrant: ARK Invest's ARK Space Exploration & Innovation ETF (ARKX) will give you exposure to the innovators and adjacent companies that are poised to benefit from space exploration. Because ARKX has a broader mandate, you'll get access to Virgin Galactic but also companies like Deere & Co. which will benefit from improvements in GPS and other satellite technologies. ARKX is actively managed, so the holdings may change over time and the expense ratio is the same as UFO at 0.75%.

Ms. McCann is a writer in New York. She can be reached at reports@wsj.com.

(END) Dow Jones Newswires

May 08, 2021 09:14 ET (13:14 GMT)

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