How to invest in Space

What exactly is space? What exactly is the space industry? Let's define space first. There are different theories and governmental agencydefinitions that result in different numbers of miles over the earth that space begins. Regardless of these different definitions, typically 50-100 milesabove sea level, an entity that is flying and is no longer needing propulsion to fight gravity is an entity suspended in space.

Governments have certain measurements because they want to control their air space for purposes of national defense. Scientists ormathematicians have different measurements because their desires are closer to advancing scientific and technological breakthroughs. Scientistsand mathematicians are limited to what governments allow them to fly over their air space. Despite the different accords between nations, there isnot an entity that owns space and commercial purposes are growing larger than ever before.

Now, let's define the space industry. There are three main sources of money flows that create the space industry.

Government spending

• In 2023 India accomplished becoming only the fourth country to land on the moon.

Travel spending

• Five companies have taken 63 people into space for adventure tourism and space experiences.

Commercial spending

• Satellite based internet-accessibility projects such as "Internet Para Todos" (IpT).
• Satellites used for observational purposes during disaster-relief efforts and data-driven agriculture.
• Lofty goals of commercial asteroid mining by Origin Space, a Chinese space mining company.

That's right!

We are now at a place in history where travel and commercial purposes are fueling the rockets entering space. Virgin Galactic has placed 16paying customers into sub-orbital space flight. Blue Origin has launched 29 space tourists.

Ultimately, Blue Origin wants to "tap into the limitless resources of space and enable the movement of damaging industries into space to preserve Earth."

The space economy was valued at $330 billion in 2023. The compound annual growth rate (CAGR) is expected to be 6 -- 10 % per year out to2040. If we assume the actual CAGR to be in the middle of that range at 8%, the value of the space industry will double every nine years. Thespace industry could easily be seen as a trillion-dollar industry by 2040.

Space is included in the national defense budget of the United States. Fiscal year-to-date numbers in 2024 place the national defense budget at$874 billion. When we look at spending on national defense, there is a consistent trend towards growth. The United States government is a majorcontributor to the space industry and has not shown any notable decrease in national defense expenditures dating back to WWII.

The CAGR of the global economy is projected to be only 3.1% over the next five years. This presents an interesting opportunity for space industryinvestors to boost their gains higher than a globally diversified stock and bond portfolio.

How does an ETF investor access this expanding industry with relative safety? There are ETFs that focus on the space industry. We have analyzedfour of these ETFs in order to start understanding the viability of our investment thesis.

There are notable differences between these thematic ETFs.

We believe that Communication Services is critical infrastructure to the world. We also believe there is an over-emphasis of this in the ProcureSpace ETF (UFO). Communicating with extraterrestrials is less profitable than the other concepts within our investment thesis. We find UFO to bethe least attractive ETF of the group and this view is supported by it attracting the least amount in total assets.

We have previously written about the Invesco Aerospace & Defense ETF (PPA) as our favorite access point to the broad category of national defense. We still like the characteristics of PPA for broad exposure to space and national defense.

What's out there?

We believe that an ETF investor could gain the best of what's out there by utilizing two ETFs. In addition to the broader national defense focus thatPPA supports, an ETF investor could also look at ARKX or SPRX as a method of enhancing their own focus on the space industry.

Investors could apportion a percentage of their investment to either ARKX or SPRX in addition to PPA. There is no significant overlap between anyof the three remaining funds. We have listed any holdings that represent over 5% of any fund below.

ARKX allocates 29% of its holdings to technology companies and 55% to industrial companies. This creates an attractive average PE ratio of 25.1.ARKX has annualized investment losses of -6.95% for its investors over the last three years.

SPRX allocates 83% of its holdings to technology companies and 0% to industrial companies. This elevates its average PE Ratio to 39.6. SPRX has annualized investment gains of 2.37 % over the last three years.

SPRX allocates almost twice as much of its investments to already proven large-cap companies relative to ARKX. SPRX enhances an investor'slarge-cap positioning when held alongside PPA.

We believe that diversifying an investment in PPA with another ETF should be done with SPRX. It holds the seemingly correct bias towardstechnology companies relative to its competitor ARKX's focus on companies in the industrials sector.

Technology enables industries. Industries come and go but the technology that fuels them does not.

Happy Investing!

Brad Gilbert

Principal

Thrive Portfolios