The space industry has generated “cosmic” annualized returns in recent years. However, investment in this area is not risk-free. Moreover, these products are difficult to access
Ever since the Soviet Yuri Gagarin became the first human being to travel into space aboard the Vostok spacecraft in 1961, exploration of the cosmos has been one of mankind’s recurring obsessions and a symbol of economic power for the countries that have led the space race.
However, the conquest of the final frontier has always been practically off-limits to investors, since most of the budget is managed by government agencies such as NASA. However, more and more private companies are dedicating part of their activity to this area and innovative startups are emerging that want to make a niche for themselves in this industry.
Thus, Bank of America Merrill Lynch estimates that the space market is set to grow from $339 billion in 2016 to $2.7 trillion by 2045. Traditionally, it has been very complicated for companies to make money from space activities due to the heavy investments required and continuous delays. However, for those truly focused on the long term, space may be one of the last frontiers of investment; we are entering an exciting era in which more breakthroughs will occur in a few decades than in the entire history of mankind.
Experts believe that several catalysts will drive this industry, in addition to military interests and the aforementioned technological advances (also by private companies such as the reusable rocket invented by SpaceX). BofAML cites commercial aerospace activity (which accounts for three-quarters of the industry), the increase in the number of countries involved in the space race (there are already more than 80 with satellites in orbit) and the falling cost of launching satellites.
It is a market segment that has an interesting potential for revaluation in both the short and long term, with continuous technological development not only in everything related to defense but also to the commercial aerospace sector.
However, it is not easy for retail investors to make a diversified investment in this area through funds. In the United States there are very few registered products and most of them are ETFs (exchange-traded funds). Some of them are the Invesco Aerospace & Defence ETF; the iShares U.S. Aerospace & Defence ETF, from Blackrock; or the SPDR S&P Aerospace & Defence ETF.
All of them yield juicy double-digit returns hovering around 15-20 percent annualized and are indexed to selectives such as the Dow Jones US Select Aerospace & Defence Index or the SPADE Defence Index. Their portfolios are composed of American companies such as Boeing, Lockheed Martin, United Technologies, Honeywell, Northrop Grumman, General Dynamics, L3 Technologies or Harris.
But if it is complicated for Americans to invest in diversified portfolios focused on this theme, for savers elsewhere it is practically impossible. Almost all alternatives are currently restricted following the latest regulations introduced in the market (which prevent ETFs from being marketed without a prospectus with basic product information written in the language of the country).
In any case, despite the juicy returns, investment in the space sector is not free of risks. One of the most important risks at the present time could be a sharp slowdown in economic growth, as the sector is highly dependent on investment in the space sector.
Another factor to bear in mind is that war and space are two themes that are very difficult to separate when it comes to investment, as they often go hand in hand. And that has its advantages and disadvantages: It is a sector that is exposed to political changes since, depending on the color of the ruling party, defense spending and aerospace investment can vary substantially.
Nor should we forget the ethical considerations that some investors may have when investing in armaments.
What are the best mutual funds to invest in the aerospace sector?
The only current mutual fund that directly targets the aerospace and defense sector is the fidelity select defense and aerospace fund. however, investors can gain exposure to the aerospace industry by investing in other mutual funds that, while not specifically focused on the industry, have significant holdings in aerospace stocks.
The fidelity select aerospace and defense fund
The fidelity select defense and aerospace fund is a mid-cap value fund that targets maximum capital appreciation. Since its inception in 1984, the fund has performed very well, with average annual returns in excess of 9%. Typically, at least 80% of the fund’s investments are in common stocks of companies with core businesses in research, manufacturing or marketing of products and services in the aerospace and defense industries.
The expense ratio for fsdax is 0.8%. There is a redemption fee of 0.75%. The fund offers a dividend yield of 0.79%. The estimated risk level of the fund is slightly above average.
The Boeing Company is considered a major aerospace company in the United States. In addition to producing commercial and military aircraft, Boeing also manufactures rockets, rocket launch systems and satellites through its Boeing Defense, Space and Security division. The company manufactures parts and component systems used in space shuttles and space stations.
The transdigm group inc. is engaged in the manufacture of actuators, control components and gears, and ignition systems for the aerospace industry.
ATK orbital, inc. was formed through a merger of the orbital sciences corporation and the defense and aerospace division of alliant techsystems. The company designs and manufactures satellites, launch vehicles and propulsion systems, aerospace component systems and aerospace structures. orbital manufactures the cygnus spacecraft used to deliver cargo to space stations.
In addition to producing aircraft interior components for commercial aviation, b/e aerospace, inc. is the world’s leading supplier of aerospace fasteners and consumables. Its consumables management systems provide inventory management, data exchange services, barcoding, quality control testing and differential supply chain management programs.
Another alternative to mutual fund investments for investors interested in accessing the aerospace sector are ETFs that track the sector. some of the available aerospace-focused ETFs include the Spdr S&P Aerospace and defence ETF and the Invesco Aerospace and Defence portfolio ETF, which tracks the Sword Defence Benchmark index.