SpaceX IPO’s hot trade: NASA ETF’s two-month, $2.6 billion liftoff

Retail investors are rushing into the space investing trade ahead of the SpaceX IPO, and one ETF has cashed in on the excitement.

Tema ETFs’ Space Innovators ETF, which launched on March 30 and trades under the ticker symbol NASA, crossed $1 billion in assets in just 37 trading days, and by the end of this past trading week, had reached over $2.6 billion in assets.

That rapid rise is due in part to retail investors hunting for exposure to SpaceX before it goes public.

While SpaceX has taken an unusual approach to its offering, setting up access for retail investors through brokerage firms at a level atypical in new deals typically dominated by institutions, the NASA fund is another alternative for investors to gain access to Elon Musk’s rocket company. It already holds privately traded SpaceX shares directly. It is one of the few investment vehicles available to retail investors that does, with SpaceX currently representing around 7.5% of the fund.

“If we’re going to invest in space … We have to offer exposure to SpaceX,” said Maurits Pot, Tema ETFs founder and CEO on CNBC’s “ETF Edge” on Wednesday.

Pot said there is no plan to sell shares once the IPO occurs. “The IPO for us is simply a remarking of the position to market price,” he said.

NASA isn’t the only ETF that has access to SpaceX, though the options are limited. Mutual fund manager and billionaire Ron Baron, a long-time Tesla and SpaceX investor, owns the rocket company through his First Principles fund (RONB). Tesla is the top holding in the RONB ETF, at over 14%, while holding close to 2% of the fund’s assets in SpaceX. The ERShares Private-Public Crossover ETF (XOVR), which offers access to late-stage private companies, also owns shares of SpaceX, which it says are worth close to $300 million based on an expected IPO value of over $1.5 trillion.

Setting a precise valuation for the SpaceX deal remains a point of contention in the market and among investors ahead of the deal’s pricing.

Mike Akins, founding partner at ETF Action, said on “ETF Edge” that the ETF structure itself is what makes this kind of access possible for the everyday investor. “Ten, twenty years ago, you talked about a space theme like this, an investor would have to go out and look up all these companies. Now there’s a ticker,” Akins said.

Todd Sohn, chief ETF strategist at Strategas, noted that several new space ETFs have launched over the past few months, including the Van Eck Space ETF (WARP), the Global X Space Tech ETF (ORBX), and Roundhill Investments’ Space & Technology ETF (MARS), which is itself a signal that retail investors are expected to pursue the theme as they have with other recent thematic trades playing off tech innovation, from AI to quantum computing. “That to me is usually a pretty good read that the industry expects space to be the next big thing,” Sohn told CNBC. “It’s a very similar idea to what AI was a few years ago and continuing on.”

But Sohn cautioned that not all funds are created equal. “It all depends on how pure or watered down the ETF is. So the due diligence for this is really important now,” he said.

There are other ETFs branded under the space investing theme that have been in the market for years already, building portfolios of stocks that include pure-play, high-risk space exploration companies, satellite companies, and broader aerospace and defense sector names.

The Procure Space ETF (UFO), which launched in 2019 and has over $1.2 billion in assets, holds Rocket Lab, Firefly Aerospace, and Planet Labs among its top holdings. The SPDR S&P Kensho Final Frontiers ETF (ROKT), which launched in 2018, also holds Intuitive Machines and Redwire.

The ARK Space and Defense Innovation ETF (ARKX) is a good example of how the definitional set of top stocks can range far across the market, with its portfolio also including Amazon and Deere.

Sohn says investors interested in these ETFs and the space investing theme should consider how much overlap there is in a portfolio with more classic defense industry names, as well as how concentrated the fund is in a small group of high-risk stocks.

“There’s only so many companies who are doing this that are public,” Sohn said. “Some of them may have 30 holdings, some of them may have closer to 50 or so,” he said of the current crop of space ETFs. “I have a feeling once SpaceX is public and trading for some time, you’re going to see some of these funds morph into more concentrated bets, depending on how they are managed,” he said.

That’s another factor for investors to consider: NASA, for example, is an actively managed fund, rather than tracking an existing index of stocks designed to represent the theme, which is the approach of UFO, ORBX, ROKT and others.

Investors will pay more for an actively managed approach from a stock picker in space: NASA has an annual net expense ratio of 0.87%, while ORBX charges 0.50%, and ROKT’s expense ratio is 0.45%.

It is clear that Elon Musk is going to be a big winner from the SpaceX IPO and likely the world’s first trillionaire. But both Akins and Sohn said the biggest risk for retail investors getting in on the space theme is volatility.

The risks in the space market were made vivid this week with the launchpad explosion of Blue Origin’s New Glenn rocket.

“Expect volatility. That is usually what happens with very early-stage industries. There will be companies that outperform and companies within ETFs that fall apart because the business model doesn’t make sense,” Sohn said.

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