The Procure Space ETF (UFO)

Today, I’m reviewing a new way to invest in the new space movement. There are three good reasons for investing in space at this time: 1) location based sharing apps are growing rapidly thanks to satellite enabled navigation 2) decreasing launch costs are creating new economically viable industries 3) with the formation of the US Space Force governments and the defense industry are poised to increase investment in space.

So far, as the economics and finance correspondent at the Living Universe Foundation, I have recommended investing in individual companies. For many investors, that is out of vogue with passive index based investments being preferred for their low cost, instant diversification, and one click ease of portfolio re-balancing. Today, I’m recommending just such a passive investment with the Procure Space ETF (UFO).

UFO tracks the S-Network Space Index (SPACE). It invests 80% or more of its funds in the companies in said index. The companies in the index all derive a substantial amount of revenue or profit from space related activity. For protection of the investors, there are minimum liquidity and trading volume requirements as well as minimum market cap requirements. Additionally, each company must meet one of the following five criteria for index inclusion: 1) the company was a “prime manufacturer” (i.e., the contractor responsible for managing subcontractors and delivering the product to the customer) for a satellite in the past five years; 2) the company was a “prime manufacturer” or operator of a launch vehicle in the past five years; 3) the company currently operates or utilizes satellites; 4) the company manufactures space vehicle components (for satellites, launch vehicles, or other spacecraft); or 5) the company manufactures ground equipment dependent upon satellite systems. The fund is currently composed of 31 holdings.

The fund is non-diversified. That is all of the holdings are concentrated in the “space” sector. This could lead to a high “Beta” and market volatility. Thus, I will caution investors not to put more than 5% of their portfolio into the ETF. There is limited history for the ETF as it started trading in April 2019. The ETF carries an expense ratio of 0.75%. This will exert a small drag on performance but will be worthwhile for most investors to pay to get the stocks as a bundle and have them automatically re-balanced every quarter. You buy once and then wait patiently, probably for decades. The fund is currently small with only 12.88 million in assets. The fund is “open” and will create or liquidate shares to match investor demand. Thus, the 12.88 million figure could change, dramatically, over time.

The dividend yield is currently very low at 3 cents per quarter (the fund trades for 25.98 as of last close). That is a yield of about 0.46%. The fund is unlikely to become an income centric investment in any foreseeable time frame. Investors should be prepared to rely on growth for returns and to sell shares to recoup investment capital.

Top tend holdings include: Ses (SESG), Loral Space and Communications (LORL), Trimble Navigation (TRMB), Intel Sat SA (I), Echostar Holding Company A (SATS), Sky Perfect Jsat (9412), Garmin (GRMN), Inmarsat (ISAT), Eutelsat Communications Promes (ETL), and Sirius XM Holdings (SIRI). These 10 holdings make up a little over 50% of the holdings by weight. This provides broad exposure to the sector in a single investment.

ACTION TO TAKE: buy Procure Space ETF (UFO) at market. Put no more than 5% of your portfolio in the ETF. Consider following a 25% trailing stop loss to protect your capital.

Lizard King

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