Outer space could soon become a trillion-dollar industry, which could provide high-flying returns for those ahead of the curve.
Morgan Stanley (MS 0.93%) believes the space economy will triple in size and reach $1.1 trillion by 2040. The significant decrease in the cost of satellite launches will allow private enterprises to shoot for the stars, enabling a huge new wave of high-speed satellite internet. If their estimates are correct, outer space could add $600 billion annually to the commercial economy, which is roughly equivalent to the amount America spends on its entire defense budget today. There's big money up for grabs for the companies focused on this opportunity.
Image source: Getty Images.
To get a better understanding of which companies these are, I recently spoke with Andrew Chanin and Micah Walter-Range, who have founded the Procure Space ETF. It is comprised entirely of publicly traded companies that do the majority of their business in outer space. Appropriately, its ticker is UFO.
Perhaps surprisingly, the majority of the ETF is invested not in defense companies but in telecommunications. London-based telecom Inmarsat is the largest single position at around 6%, but more recognizable U.S.-traded companies such as Dish Network (DISH) and Garmin (GRMN 1.27%) are also represented in the top 10 (index holdings are as of March 31).
In this segment of our conversation, Chanin describes the transformational changes taking place right now that require a huge investment in space infrastructure. He also explains the philosophy he used to create the ETF, what type of investor it is best for, and several risks inherent in this fast-growing industry.
A transcript follows the audio conversation below.
Transcript
Simon Erickson: Let's bring this back to investors.
Can you tell me a little bit about the ETF, the ticker UFO that investors can actually invest in right now? What led you to actually want to create this in the first place? And what kind of investor do you think this is right for?
Andrew Chanin: Well, to me, in the back of my mind this always seemed like an area that I believe that there was significant investment appetite for. And really until recently it would have been pretty difficult to be able to build a type of index that was actually truly representative both of the global space economy, but also being able to provide investors that want to invest in this space with pure-play access and exposure to those actual companies.
It wasn't until I had been introduced to Micah now over a year ago and had been able to see the research and the effort that he had put into designing this index that I finally felt comfortable that someone had done the proper job of designing this index to truly represent that theme that I believe that investors do want access to.
In my mind, when an investor is trying to invest in a theme, a technology, something that although people have been building various space businesses and initiatives for decades now, there are still many new companies and entrants and ideas and technologies that are constantly being designed and built to enter into this industry.
Someone that's looking to get this exposure, just like with most industries, it's extremely difficult to try to pick who the winner is going to be. Yet that doesn't mean that the broader industry isn't full of potential. I think that people that are looking to get exposure to the global space industry and looking for the simplicity and instant diversification that an ETF provides. To me, the ETF is a beautifully designed type of structure to give investors the ability to access these global companies specializing in various areas of the space economy at a relatively low cost as well.
So having met Micah and being able to appreciate the vast understanding of where not only this industry is today, but also looking forward into the potential industries of the future that may also be defined as space industry. I feel like this product has now, unlike ever before, now made space available for investment to the broader investment community. And not just large governments and super-affluent individuals.
Between this increased interest in the overall space economy, being able to get roughly 30 publicly traded companies from around the world in the simplified access of ETFs, I believe it is a very compelling opportunity for many people that have been looking for this exposure for years. I think that I'm very excited by what we've been able to do together and bring this product UFO to market.
Simon Erickson: Sure, and what's the sentiment that you're seeing from investors right now? You're talking about that investment community. Now it's available to them.
Do your clients or the people that are investing in space-based economies or space-based companies, do they still think of this as a futuristic, 5- to 10-year thing in the future? Or what is their perception of companies that build their businesses around space?
Andrew Chanin: This is a real industry today. There are companies that are making real revenues and profits from this industry. I think that we're only limited by our imagination and our ability to create new and more efficient technologies.
Like Micah said, back in the day, this was a heavily government-funded industry. Now we're seeing that governments, they have their missions and their various initiatives and they're more willing to work with either other governments and agencies or to go out and say, "Hey, if you're a company and you can help us achieve whatever our goal is, we're willing to sign contracts with you." It doesn't need to just be what we as an individual entity can accomplish. It seems to me that is helping between that and also a better understanding and groundwork for what space policy looks like is creating this really unique breeding ground for these new companies, ideas, and technologies to emerge.
Right now the companies that you'll look at in the index are just some of them are companies that our people are familiar with, but most of these companies are ones that people have little to no exposure to.
I think that that's -- when creating a new semantic ETF -- you really want to be able to create something that's new that's actually giving investors these new types of exposures. If you're not doing that, well then, maybe you're just creating a gimmick. We like to have a fun time talking about yet what the future of space is. But here and today, it is already an extremely real industry with your estimates of it being roughly $384 billion industry today with many new kinds of technologies making new efficiencies and opportunities such as the lower cost of launching something into orbit. These smaller satellites that are now cheaper to launch with, that are supercharged with new technologies and sensors and whatnot.
The ability for people to get into this industry now and being able to invest in some of these companies that are the infrastructure for those other transformational trends that we've been speaking about that are very data-heavy. It just seems to me and to many of the investors that we're talking about that the time for this industry has already arrived. And it's probably going to look very different in 10 years from now as well. But these companies that are here today are already real companies making real money.
Simon Erickson: Sure. And if I heard you correctly, Andrew, it sounds like there might not be a whole lot of correlation because you said a lot of the positions in the ETF or the companies that are represented in the ETF might not be overlapping with other funds or other vehicles that investors are putting the money to work in today?
Andrew Chanin: That was something that has always been extremely important to me when creating a new ETF. If you're not providing new exposures for people, then what are you really doing? You're not actually really providing anything. And to me, it's not worth it. For you as a company, for you as an investor.
We're ecstatic to be working with Micah and [index developer] S-Network in this endeavor. We'd always be happy to answer any questions that people have about the fund or the broader industry.
