Why Space Stocks Are Rocketing Higher Today

What happened

One of the hottest names in investing is launching an exchange-traded fund (ETF) focused on space, and that has some of its likely holdings soaring on Thursday morning.

Shares of Stable Road Acquisition (NASDAQ:SRAC) are up 26% in pre-market trading, while shares of New Providence Acquisition (NASDAQ:NPA) are up more than 19% and shares of both Virgin Galactic Holdings (NYSE:SPCE) and Maxar Technologies (NYSE:MAXR) climbed more than 15% in the premarket.

So what

Few investment firms had a better 2020 than Cathie Wood’s Ark Invest, with its flagship ARK Innovation (NYSEMKT:ARKK) fund returning 170% last year and growing assets under management to $17 billion. Investors tend to focus on what is hot, and so Wood is getting a lot of attention right now.

Late Wednesday, Ark Invest filed to operate “Space Exploration ETF” under the ticker ARKX. Space is a red-hot area right now, attracting significant investor interest, and on Thursday investors piled into the stocks most likely to be included in the ETF.

Image source: Getty Images.

Virgin Galactic is a space tourism company that hopes to begin service this year, ferrying paying customers beyond Earth’s atmosphere for $250,000 apiece. Maxar, meanwhile, is a maker of space hardware and a provider of satellite-based Earth imaging and data.

Stable Road is a special purpose acquisition company, or SPAC, set to merge with Momentus, which is building spacecraft capable of moving satellites and space debris in orbit. New Providence Acquisition is also a SPAC, set to merge with space-based communications vendor AST SpaceMobile.

One of the challenges of a space ETF, and a likely reason these stocks are moving, is there are relatively few public companies in the space niche. Ark Invest’s Innovation fund is strongly associated with Elon Musk’s Tesla, but his space company, SpaceX, is not currently public.

Other potential entries into the ETF include a wide range of defense contractors including Northrop Grumman (NYSE:NOC), Lockheed Martin (NYSE:LMT), Leidos Holdings (NYSE:LDOS), and L3Harris Technologies (NYSE:LHX).

Now what

Space, though exciting, is hard to get right. Even the best operators experience setbacks, and some seemingly promising technologies and companies will fail to reach orbit.

Given the high risk but potential reward, an ETF strategy allowing an investor to buy a stake in a number of companies instead of putting funds into just one stock could make a lot of sense. And given the likely popularity of the Ark space ETF, it seems likely that new attention, and new funds, will flow into the companies in its basket.

These are exciting times for space investors. Just be sure to understand the risks and keep space to a small part of a well-diversified portfolio.