The 5 Best Space ETFs: Invest in the Final Frontier

Space-related businesses are constantly reaching new heights in communications, aerospace, defense, and exploration. The industry is heavily influenced by defense spending and commercial aviation demand. Consequently, revenue and earnings for individual firms can be volatile. 

Fortunately, space exchange-traded funds (ETFs) make it possible to obtain an out-of-this-world portfolio at a price point firmly grounded on Earth. The ETFs are typically concentrated with a few dozen companies and have minimal yields. However, we believe sound options still exist. Read on to learn about our favorite and best space ETFs to buy.

The Best Space ETFs

SPDR S&P Kensho Final Frontiers ETF

The SPDR Kensho Final Frontiers ETF (ROKT) seeks to push its share price to the final frontier by investing primarily in communication, aerospace, defense, and deep-sea companies. With 32 holdings, the S&P Kensho Final Frontiers has a diverse portfolio to gain exposure and grow. 

Although diversified, we feel the ETF is too small, with only about $16.2 million in assets under management. Moreover, the dividend yield is only 0.51%. The fund was started in 2018, and the expense ratio is 0.45%.

This fund follows the S&P Kensho Final Frontiers Index, which focuses on space-related industries developing means of space travel and future exploration. It is rebalanced semi-annually, resulting in low turnover. The result is an ETF with 53% weight in aerospace and defense.

The top holdings include Oceaneering International Inc. (OII), RTX Corp. (RTX), and Heico Corp (HEI), which make up about 14.3% of the total fund. The top 10 holdings According to Stock Rover*, Industrials make up about 65% of the fund, most of which are aerospace and defense companies. The second sector is Technology, at about 12.1%.

Oceaneering International is an engineering and robotics business that provides remotely operated vehicle (ROV) technologies to the energy industry. It focuses on subsea ROVs for offshore oil and natural gas platforms and also provides products and services to defense and space exploration companies and the U.S. Government.

RTX Corporation is one of the country’s largest aerospace and defense firms. The firm was previously known as United Technologies, but after a multi-year reorganization, it evolved primarily into an aerospace and defense company. It operates through three business segments: Collins Aerospace, Pratt & Whitney, and Raytheon. It makes aircraft assemblies, components, electronics, jet engines, missiles, and sensors.

Through many acquisitions, Heico Corp. has grown into an aerospace and defense components, electronics, and services supplier. The firm is known for its growth but pays a rising dividend, although the yield is low. The company is a Dividend Contender with 19 years of increases. Further, Portfolio Insight* gives the equity an A+ dividend quality grade.

SPDR S&P Aerospace & Defense ETF

The second ETF on this list of best space ETFs is the S&P Aerospace & Defense ETF (XAR), which is as close to a pure space play as you can get in this thematic ETF sector. One hundred percent of its net assets are invested in 33 aerospace and defense companies. The fund tracks the S&P Aerospace & Defense Select Industry Index.

The fund is more prominent than its sibling, with over $2 billion in AUM, making it a better choice. If more incentive was needed, its expense ratio is only 0.35%. However, the estimated dividend yield is only 0.46%.

Several of these companies have impressive performance data from years of work on this side of the ozone layer. To keep up with ever-evolving Technology, they also look to the space industry. Some of the top fund holdings are RTX Corp (RTX) at 4.2%, General Dynamics (GD) at 4.14%, and Curtiss Wright Corp. (CW) at 4.06%.

General Dynamics is an aerospace and defense conglomerate. It operates through four business segments: Aerospace, Combat Systems, Marine Systems, and Technologies. The aerospace segment makes business jets and provides small airport services. It is well-known for making the M1 tanks, Stryker vehicles, nuclear submarines, and Gulfstream business jets.

Curtis Wright is a more minor player in the aerospace and defense industry. It designs, manufactures, and sells components, parts, and electronics to prime contractors. The company also provides manufacturing and coating services.

iShares U.S. Aerospace & Defense ETF

iShares U.S. Aerospace & Defense (ITA) is another fund in the space ETF race that invests primarily in aerospace and defense activities. It is the third ETF on the list of best space ETFs. Most of the companies in this fund deal with one or more aircraft manufacturing segments or defense-related products. The fund tracks the Dow Jones U.S. Select Aerospace & Defense Index.

The expense ratio is 0.42%, on par with its peers. However, it is much larger at more than $6 billion in AUM. Additionally, the yield is higher at 0.74%. One risk is that the ETF is exceptionally concentrated, with the top three companies comprising 45.5% of all assets.

Like most space-related ETFs, iShares has only a few dozen holdings due to limited investment opportunities. As a result, it’s hard to say if the number of holdings will increase over time, but the fund currently invests in 35. According to Stock Rover*, Raytheon Technologies Corp (RTX) makes up 18.8% of the ETF, with Boeing (BA) and Lockheed Martin (LMT) following at 14.42% and 13.0%, respectively.

Boeing is well-known for its fleet of commercial aircraft models that take to the skies each day. Similarly, it has been part of nearly every significant United States mission into space. Boeing makes missiles, launch vehicles, satellites, and space probes. Boeing also makes the 737, 767, 777, and 787 commercial aircraft platforms. In addition, it produces manned and unmanned military aircraft, including the B-52, Apache AH-64, V-22 Osprey, F-15, F/A-18, C-17, and more.

Lockheed Martin is the largest aerospace and defense company in terms of revenue. It has many years of experience designing advanced military aircraft, munitions, missiles, rockets, etc. It has also partnered with the United States Space Force to develop technologies to protect the world from orbit. Lockheed Martin makes the F-35, F-22, F-16, C-130, C-5, Aegis, Apache, Black Hawk, etc. The company is also one of the best dividend growth stocks due to its status as a Dividend Contender, dividend safety, and strong balance sheet.

Space Exploration ETFs

We include this section about space exploration ETFs for completeness. However, these ETFs are riskier, more volatile, and more expensive than those listed above. They are not necessarily among the best space ETFs but may attract some investors.

ARK Space Exploration & Innovation ETF

The ARK Space Exploration and Innovation ETF (ARKX) is a thematic fund investing in orbital and sub-orbital aerospace and enabling technologies. The ETF also invests in companies that benefit from these technologies. This relatively new ETF had its inception date in 2021. It is one of the offerings from market influencer Cathie Wood’s Ark Invest. 

Investors who are not comfortable with volatility should probably avoid ARKX. It is an active ETF that does not track a passive index. Additionally, the fund has a high expense ratio of 0.75%. The AUM is about $273 million. Investors should remember that this fund has had a negative total return since inception.

ARKX ETF is a mix of aerospace companies and enabling technology companies that provide the means to advance space exploration. This actively managed ETF currently represents 35 companies, with Kratos Defense & Security Solutions at 8.83% (KTOS), Aeroenvironment (AVAV) at 8.62%, and Trimble at 7.6% (TRMB) being the top holdings.

Kratos specializes in satellite communications, cybersecurity, microwave electronics, unmanned systems, and missile defense. It is smaller than most other aerospace and defense companies, with a market capitalization of only ~$ $2.66 billion. Its main customers are the U.S. Department of Defense, intelligence agencies, and prime contractors.

Aeroenvironment is a small aerospace and defense firm specializing in unmanned aerial systems (UAS), ground control systems, and high-altitude pseudo-satellite systems (HAPS). In addition to entire platforms, it manufactures and sells components and provides engineering services. 

Trimble is known for its success in agriculture and construction guidance and positioning, as well as software for route selection, surveying, geospatial systems, and more. The company also branched into government and natural resources. It is also a big player in developing means to colonize other planets through partnerships with Elon Musk’s SpaceX and NASA.

Procure Space ETF

Procure Space ETF (UFO) uses the S-Network Space Index as a guide, seeking to mirror its performance. The fund chooses companies from this underlying Index that generate at least half their revenue from space-related businesses. Like ARKX, this ETF is volatile and has a high expense ratio of 0.75%. However, it is even smaller, with an AUM of only $33.4 million. The fund has a negative total return in the trailing five years.

Despite the clever ticker, the individual stocks in this ETF reach far beyond space exploration-related companies. Names like Garmin (GRMN) and Sirius XM (SIRI) make the list of 35 holdings. Procure Space is one of the few to include Richard Branson’s space tourism giant Virgin Galactic Holdings (SPCE) but at only a 2.41% weighting.

Some of the holdings at the top of this ETF are Garmin Ltd (GRMN) at 5.3%, Globalstar Inc (GSAT) at 5.24%, and TomTom N.V. (TOMAF) at 5.16%.

Garmin develops, manufactures, and sells wireless devices, including sports watches and fitness trackers, cycling products, satellite communications, cameras, and more. The firm is headquartered in Switzerland but is also based in Kansas. 

Globalstar provides mobile satellite services worldwide. Its main markets are recreation and personal safety, governments, oil and natural gas exploration, and public safety. The company operates in a competitive space.

TomTom NV is a Dutch company that operates globally. It develops and sells navigation and location-based equipment. Its products are mainly based on Global Positioning Systems (GPS). The firm is small, with just over $1 billion in market capitalization.

A Little About ETFs

Exchange-traded funds offer a way for investors to get a piece of several publicly traded stocks with a single purchase. Thematic ETFs make it possible to invest in a specific sector that is or has the potential to do well. It is worth noting that there’s no ownership of individual stocks within an ETF.

ETFs trade just like stocks and can be bought or sold whenever the market is open. With a diverse portfolio of securities, these funds are designed to weather fluctuations from business to business and generate long-term growth.

Investing in an active or passive ETF often boils down to risk tolerance. Unlike stocks, ETFs are usually tied to an index such as the Dow Jones U.S. Select Aerospace & Defense Index and track the Index. Actively managed ETFs strive to do better than the underlying Index but often do not, while passive ones tend to stay close to the Index’s benchmark.

Should You Invest in Space ETFs?

ETFs, in general, speak to those looking for long-term projected growth and diversification. They will likely not appeal to anyone looking for quick gains.

These funds also allow newer investors to grab some higher-priced stocks for significantly less. For example, the iShares US Aerospace & Defense ETF is currently trading at just over $131. The fund’s number three holding, Lockheed Martin, now sells for nearly $455 per share.

Our world of communications relies extensively on satellites; trips to the Moon and Mars draw closer daily. But let’s not forget the budding space tourism industry and the possibilities there. With a stronger push to pursue the final frontier every year, companies are investing more and more in their space programs.

Where to Buy Space ETFs?

Because a space ETF trades much the same as a traditional stock, you can acquire it on almost any stock trading platform. Exchange-traded funds will most likely appear on major stock exchanges like the NASDAQ or the New York Stock Exchange (NYSE).

Best Space ETFs: Final Words

The space industry is still in its infancy, and the possibilities are endless. Whether we see a colony on Mars or not in the near future remains to be seen, but we rely increasingly on outer space technology to keep up with our ever-changing world.

Space ETFs are an excellent option for getting involved in this lucrative sector without breaking the bank. Many space-related companies have higher share prices due to decades of growth, but an ETF delivers a piece of each for one reasonable price. Space exploration ETFs are riskier and more volatile. However, several of the best space ETFs focus on more established aerospace and defense companies with space businesses. The funds often own some of the riskier companies but in smaller percentages.

Disclosure: None

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