The ETF Space Race

any more ideas here on planet Earth. So maybe instead of looking for white space, people need to look for real space, black space and leave Earth. That's what we're gonna spend. What are we hinting at here? A space the Final Frontier, literally the Final Frontier. There's a race

going on with companies. You've got the Space Force, you know, coming into play, and now there's ETFs that are sort of trying to get ahead of that, and you know, see if they can appeal to investor's imagination and hopefully get some performance while they're at it. And this was another episode where we decided to outsource it to the ever intrepid Rachel Evans at Bloomberg News, who actually wouldn't

talk to people who are involved directly in this space. Yeah, this from lent itself to field work because there's it's a whole industry and a lot of people don't know a lot about it and how legitimative is it. And she found some characters, some really good characters. Yeah, this week gund trillions the E t F space race and that's when it happened. That's when we first heard that

they had come by. That's when we should have prepared ourselves for any eventuality, But we didn't imagine yourself as one of the crew of this faster than light spaceship of the future. You'll boldly go where no man has gone before, space, the Final Frontier. Just the mention of it, conscious images of Ewoks, zig Stardust, every sci fi book you ever read as a kid. It what if you're grown up self could invest in the cosmos just as

easily as the US stock market. That's the mission for a clutch of new and planned E t F s. They want to take investing out of this world. To find out more about this new opportunity, I headed to the Hayden Planetarium in New York's Natural History Museum to meet Christopher Kramer, a PhD student at Brown University and an expert in Martian rocks. The lady on the desk said, I could go straight in with a thank you very much, thank Hello are your Christopher? Rachel everts between backing news,

how how are you doing at this is cool? Christopher was in town to host a three D tour of the Red Planet, but first we sat down deep in the bowels of the museum to chat about the types of companies doing business in space. There's been pretty sense of commercialization in the realm of lower orbiting satellites are just they're various commercial satellites, artificial satellites that over the Earth that are the foundation of various communications technologies that

we use today. And there is a big push through the miniaturization of satellites to make it even easier for various public and private interests to deploy their instrumentation of choice, their hardware of choice into Earth orbit. And so they're huge profits to be made. And I think that they're huge profits being made in that in that realm right now. Even as many of us in the US now stream a favorite shows, these satellites beam TV into millions of

homes around the world. They're also responsible for positioning technology like the GPS in your car and ensuring that everyone agrees what time it is at any given moment. Space, Christopher tells me, could also fuel new industries from tourism to mining asteroids for precious metals. It all sounds pretty far out. So I went to meet Andrew Channon, whose firm Procure a M is one of those planning to start a space ETF. I asked him to tell me

how he got interested in space. So, starting off in the et F industry in two thousand seven working for an et F specials firm, we're seeing a lot of innovation in the ets space. We were kind of past that first phase where the low hanging fruit products were already taken. So space was always one of those things where looking back, yes there are satellite companies and aerospace companies and defence companies that were kind of tied into this broader theme. Really, we started seeing so much more

public interest in space over the last several years. Originally, in our early days, it was really a government effort, and governments wanted to plant their flag figuratively and literally on showing how they were the best and that they can say we're gonna put a man on the moon and they can do it. And I think that was one way to to bring the country together but also

just show what we're capable of. At a certain point, governments realized that it's good for us to do this, that we can you know, rally our our our citizens around it. But does the government really need to be the one coming up with all the solutions? And through that realization and paving the way forward with regulations, it's made companies more comfortable in trying to expand their business

futures into space as well. So really and very strongly in the last decade, you're seeing a huge ship where there's a significant amount of investment capital going into the private side, not the government side, where wealthy individuals the Basos, Branson's and Mosques of the world putting their own money where their mouth is and trying to create their own solutions. But some of the things that they're trying to do

actually help out the governments. Jeff Bezos, Richard Branson, and Elon Musk have all very publicly pursued their own space programs, but the broader space industry also has bags of potential. Morgan Stanley estimates that space could generate one point one trillion of revenue by up from about billion today. Recently, NASA invited nine companies to bid for contracts to land on the Moon, just after successfully landing a probe on Mars. But the space industry could also get a boost from

another dimension. You look at the universe and how how abundant it is, and it makes people think that, you know, there's a high probability that we aren't alone. And if we aren't alone, all of those could spring some very new growth potential in the space industry itself. So, you know, are a little green mental mals waking out there or

some other type of intelligent life. I don't know where intelligent life is or what they may look like, but I certainly would not be surprised at at some point, whether we're we're told or we actually experienced it for ourselves, that there that we're not alone. And yeah, I think all that makes makes everything, you know, that much more exciting when looking at space as as an actual industry. What happens when we do meet extraterrestrial life, Well, we

could become great friends and buddies with them. And we could work together and we can learn their technologies and make our systems even better and completely transform our of life, whether it's on Earth or via using space systems and networks. Or what happens when extraterrestrial life absolutely hates us and doesn't want to get along with us and they want our planet or they want to erase us. Well, in that case, we're gonna need a lot of defense spending.

Those are two completely different paths, but ones that would show very different futures for how investments this might might proceed. So how does that translate into a fund, Well, it depends who's designing it. State Street is the only money manager currently out with the spacecf it's Final Frontiers Fund, which also buys companies involved in deep sea exploration, allocates about fifty of its assets to aerospace and defense companies

already found in an existing fund. Andrew Channon can't discuss the inner workings of his fund, as it is still seeking approval from the u S regulator, but to look at the index his fund plans to track suggests it will likely allocate almost two thirds of its assets to communications and consumer focused firms like Garmen. A third space ETF with its own methodology, is also in the works

from DWS Group. I wanted to learn more about these differing approaches and whether investors could feel misled if they discovered their Space fund was full of everyday names, so I spoke to the man behind the index that Andrew's fund intends to use, Mica Walter Range. Mica previously worked for the Space Foundation, a nonprofit that supports space activities, and partnering with s Network Global Indexes to create the benchmark. I think it's largely a matter of the story of

explaining the people. Many people don't even understand that GPS is an important component of their cell phones and the other systems that they use on a daily basis. Even in the financial industry, probably most people don't understand that the timing of the global financial network is governed from space. So understanding just how intimately involved space is in our daily lives is something that I think actually does get people excited when they realize that we have all of

these wonderful things because of space. A number of the companies in the index are actively engaged in exploration. They're building the technology, they're putting together the systems that will be used to send robots to other planets, to send people deep into space. If you're investing now, that's what you can look forward to seeing in the future. The other part is a lot of people are excited about

some of these new space startups. But UM these companies that are trying to do different things from UM what has been done in the past, or doing them in different ways. How many of these, of course are not publicly traded, not yet. However, they off them to have partnerships with the current companies that are publicly traded, and so when you invest in those companies, you're also in a sense investing in those partnerships. And for those of us who are not Silicon Valley venture capital firms, it

may be the only way. That's all sounds compelling, But I'm no expert. Do these funds pass the test? Are they spacey enough? I asked Christopher Kramer, the Mars academic, to take a look at the companies that Andrew's fund will likely buy. A right, so, I have a couple of UM lists of companies that are proposed to be in UM, A couple of ets that are going to be sharing launched. Yeah, these are all These are very familiar.

Um and a lot of these, I mean, just looking at these, a lot of these are earth opening satellite companies. Do they seem like space companies? Do you? I mean, obviously A T and T is kind of a telecommunications company really, but I mean, if you're if you're criterion it's just that that they have deployed some of their corporate hardware assets beyond the edge of Earth's atmosphere, then I would say, yeah, that's that's a pretty low bar for entry. But I think it's the only really realistic

criteria that you can use in the year. So I would say, um, yeah, absolutely, if you did decide to kind of add to a portfolio, um and by you know, an ATF, would you consider buying a space ETF. Would that be something that would appeal Yeah? Probably, I mean

I I wouldn't. I would be cautious only if only because I mean I feel like I'd be like putting my all my eggs in one basket sort of thing, like, I mean, I mean, I'm more invested in space in one way, and I don't necessarily want to Maybe I want to have like a backup plan in case, in case, like the bottom falls out of space exploration. But that's not to express any sort of doubt in the in

the value of these sorts of investments. So if I were doing something different in my goal were to make money, then I see no reason why not. You just don't want to lose your jo of and lose your money at the same time. Yeah, I think that's okay. So

that was amazing. First of all, Little Green Men. Yes, Look, this is what stuck out to me is Andrew chaining sort of and I just watched this whole thing on Netflix about like the edge of the universe and whether there's other life, And I love that he sort of said, yeah, you think aliens are nice, this will make money. You think aliens are like fear Phone will take over Earth? This etf will also make money. I thought that was awesome. And he's really upfront about the fact that, you know,

he's been interested in space for a very long time. Yeah, he's seen the movies, he's read the books. You know, this is an area of interest. He actually has a bet going on with his in law was about where and when Little Green Men actually arrived. On this point, this is the thing he could actually tell me the details of the bet. I'll have to go back and look at the details, but there is a bat outstanding between him and his in law is about when we

actually get aliens on Earth and region. What was your day go away from from really doing this a little bit of a deep dive into uh space ets. So the big takeaway from me was this kind of gap, both in terms of E t f s and in terms of space generally, between what's kind of possible now and the potential. So you have at the moment, satellites are kind of the the sort of the big space

industry that's out there. Yet there's this potential for asteroid mining, getting it kind of precious metals in lumps of rock in space. You could be potentially seeking water from from asteroids or even from the moon. H there's the potential for space tourism. You know, all these incredible, almost crazy sounding ideas are potentially possible in the future, but actually accessing those ideas now is very difficult because so many

of those companies aren't public. Also exactly to this private public thing, where's something like SpaceX, which is you know, I think the third biggest adventure capital backed company in the US right now, and and it is has been highly successful for Evenlan masking company, but it is not you know, a public company yet, so few people can

actually see returns on that investment. Yeah, And I think that's really an issue with thematic funds generally, is that how early can you get into these kind of themes. Is space developed enough as a concept to be able to invest in it now? The funds that are out there now sort of suggest that yes you can, because you can buy satellite companies, you can buy some of the sort of early stage rocket development companies that are public.

But it is quite a thin field. If you look at kind of the number of companies that are in these funds, you're looking at around thirty or so. Whereas when you compare that to you know, an SP five hundred fund for example, that clues in the name you have a significantly more diversified set of companies. How does

that squere with you? Yes, So when I think of theme ETFs exactly that I look at how much are of these companies are just in run of the mill sector or SMP ETFs And here's um the spider space ETF. So breaking it down sent industrials, so it's heavy industrials that is aerospace and defense companies, So it looks a lot like X L I, but more like I T A,

which is the I shares aerospace and defense. But it does have only three percent overlap with the SMP five hundreds, So if you do own just sort of like the SMP, you're probably not getting a lot of space or military spending for that matter. And it's got about a fift overlap with I T A, which I thought it would

have more overlap, So I don't know. It's kind of past my overlap sniff test, I guess, And it's about the same volatility as a sector E T F. But if you're looking at correlations, it's going to correlated I T A, but only correlated to the SMP five hundred, So it adds a little diversification. So uh, it's better than some that I've seen, but there's others that I think are even more uh. In in this sort of smaller niche area of a fledging industry, this one does

have some big socks like bowing and whatnot. The really interesting thing that from a differentiation perspectives, if you look at the cost, now that is something where you really do see a gap between something like the SMP five hundreds, which you can get for four basis points total stock market for three basis points. These funds, the cheapast of which is going to charge well, does charge forty five

basis points. There's a fund in the works from Deutsche that would be coming out dw S as I think they're now rebranded, that will look to charge fifty basis points. And Andrew's fund will look at seventy five basis points. So when you think about that versus say three or four basis points for your broad SMP five funds, you can certainly see that there's an advantage to coming out with these thematic products from an issue at perspective for investors. Yeah,

you gotta pay a bit more. Yeah, absolutely that This is sort of like the new active. These are ways to sort of roll the dice and try to do a little better. And also you can understand them, right, they capture imagination. Speaking of that, Andrew's is the most expensive, I guess on the list, but his ticker is so freaking killer UFO. I mean, he's the guy who came up with hack, which is you know, top two best tickers ever UFO to me, what's the spider one again?

It's x k ff. Oh god, that is so bad UFO. To me, if if they all start out performing and have that sort of nice performance moment, I bet UFO does a little better simply because of that capturing of the imagination. Although the spider one is forty five, it'll

be cheap versus sort of you know, flashing. And this is another example where you know, we have one product that's already out yet, Ufo not out yet, So what's that going to be like when it finally does maybe come to market, right, Yeah, And the same with the Deutsch product, which also has a pretty decent ticker. They're looking at Galaxy g l x Y, which you know, because it's not bad, it's kind of that's pretty good. Yeah.

I think the static one is interesting because they're trying to draw that connection with their existing sector based products, and hence you've got the X at the beginning. They're trying to align it with those other kind of sector spider ets that are out there and suggesting that this

is a new type of sector. How much were people are willing to talk about sort of just getting this real estate now so that if this economy, which is, you know, there's there's certain projections that put it up close to like a trillion dollar ors over the next couple of years that this will be a place that

we see this extraordinary growth. So just by having that ticker and getting their first, you're basically building the house that you'll put furniture and once the company's come to bear later well a bit like the real space race. It's all about planting a flag, right, you want to claim something for that much more eloquently than I agree, But I think that's I think it's very true, and we've seen it time and again in the E t

F market. If you are first out there, if you have a catchy ticker and can kind of get some real estate, then the assets do kind of flow in if you see some performance. I mean, that's going to be the big sort of test of these products as they kind of evolve. Are they able to adapt to the direction that the space industry goes? Are they able to in their indexes incorporate these new companies in an efficient manner and then actually capitalize on that to show performance.

You can almost just see there's like one dynamite I p O that happens at some time in the future, whether it's Basin next or somebody else, and it just totally sweeps all these up with it. Again, when you post that there's a space etf filing, you tend to get some snickers on Twitter. There's definitely like it sounds gimmicky, like, oh, what are they thinking of next? But let's face it. M merri Lynch had a report which you mentioned. I believe that the industry Morgans only sorry that could hit

UM three trillion. It's up from three fifty billions a day. I think Berlinch also had a report, And there's are Google that, there's articles on these and they're all written very legitimately. But for some reason, you take that idea put it in a TF and people sometimes think it's like a scam or a gimmick, But the people you talk to were dead serious because they work in that industry. Yeah.

I was actually pleasantly surprised by that. I mean, as a journalist I come to all these things pretty skeptically and trying to pick holes in these things. I actually was quite impressed with, like how much potential there is for space because it does sound like this kind of whack a doodle idea when you kind of like mention it's people. I think the issue is still going to be can you put that into an e t F?

And that I think is still kind of an open question as to whether these funds really do represent space. But they do seem to at least attempt to represent it as it currently is, and I think that's going to be the kind of question for these funds going forward if we're really at the beginning of a new space age where there's little micro rockets that can proventile stuff like who knows where this goes? So did people talked to kind of know what an e t F was when you said you're like E t F reporter,

they had they know that? Or do you have to go to like it's like a mutual from the trades? Yeah? No, On the on the whole, people were fairly savvy about E t F. I thought it was quite interesting chatting with the guy Christopher Kramer who is at the Martian Rock Expert. I mean, he's, you know, a young guy. You know, he's in in his mid twenties studying you know, these kind of very spacey things, but you know he's still kind of has friends that are interested in e

TF and and understands what they were. He didn't currently own any himself. He had a few mutual funds Index mutual funds UM, but he know got the idea of an e t F very quickly and was able to kind of think about how this might work in that sort of instrument. Rachel Evans, thanks for another field trip on Trillions. Thanks for having me, Thanks for listening to Trillions until next time. You can find us on the Bloomberg terminals, Bloomberg dot com, Apple Podcasts, Spotify, and wherever

else you'd like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Caltunist, and Ray Chill is at Rachel Evans. Underscore and Why Trillions is produced by Magnus Henrickson. Francesca Levy is the head of Bloomberg podcast by