By Harvest Portfolios Group
By Michael Kovacs
President & CEO
The space race of the 1950s and ‘60s pitted the Soviet Union and United States against each other in a Cold War show of power politics. Each scored a number of firsts with the Soviets sending the first man into space in 1961 and the US landing the first man on the moon in 1969.
Sixty years after the space race began in earnest, things have changed a great deal. An industry created by governments has evolved into one increasingly dominated by large corporations, often in partnerships with governments. Whether it’s the launch of satellites to handle 5G communications, fostering space tourism or building space station and rocket components, what was science fiction is now firmly science fact.
That potential led Harvest Portfolios Group Inc., to launch Canada’s first index-based industry exchanged traded fund (ETF). The Harvest Space Innovation Index ETF (TSX: ORBT) invests largely in multi-cap global companies engaged in the development of products and services related to satellites, space flight, space stations and the emerging field of space tourism.
“It’s absolutely unique; the first pure space Index ETF of its kind in Canada,” says Michael Kovacs, CEO of Oakville, Ontario-based Harvest.
In an interview, Mr. Kovacs talked about the strategy behind the ETF and how it fits with Harvest’s philosophy of combining income-based strategies with the growth offered by new technologies.
Why are you launching the Space Innovation fund?
At Harvest, our underlying philosophy is to focus on industries with very strong growth trends. We see space as something that’s going to develop quite quickly over the next 10 years.
Why do you see this sector developing so quickly?
The industry has been around since the end of the Second World War and has been government driven, but that’s all changed.
NASA, the US space agency has contracts with more than 300 companies. That’s for everything from rocket launch systems to satellites, to developing the technology for different parts of spacecrafts. You’re seeing this because private enterprise is more efficient at doing some of these things.
What is driving demand for space-related products and services?
Many services. 5G communications and broadband communications. Television, navigation systems, weather systems, business communications. All kinds of internet and business functions. It’s all growing rapidly.
If you think about broadband alone, there are about 3½ billion people who do not have access to the internet. Satellite systems will eliminate that. Defense spending is another. The US fleet is the largest in the world and it needs sophisticated communications systems.
There’s a plan for another space station, this one orbiting the Moon in the next five or six years. They are using Elon Musk’s Space Exploration Technologies, or SpaceX as it is known, to bring up pieces for assembly. Other companies like Lockheed Martin, Northrop Grumman, which are considered defense companies are also involved.
Are satellites are also big business?
Yes. Unbelievably so. There are more than 2,000 satellites in orbit around the earth now and it is estimated to grow to 16,000 within 10 years. They will mostly be in inner orbits, about 100 kilometers or so above the planet.
We tend to think about satellites as huge things with antennas and solar panels. But these days many are the size of a tennis ball and you may have 25 or 30 clustered together for 5G communications.
Someone is going to build that equipment, deliver it, repair it and fix it if there’s problem. In a recent report, JPMorgan estimated satellites are a US$1.2 trillion dollar industry within 20 years.
How does the Harvest Space Innovation Index ETF capture this opportunity?
It is the first innovation index ETF in Canada. There’s nothing else like it. We’re providing a diversified portfolio across satellites and things emerging travel and tourism industry which includes such companies as Richard Branson’s Virgin Galactic. It also includes transport and logistics and rockets and defense. We have a portfolio with three or four different categories.
Who might be interested in this ETF?
It is not our core income generating product but is positioned for growth. It is a specialty holding that captures a long term trend.
What holdings are in the ETF?
There are 40 stocks, equally weighted and based on an index run by Solactive AG. It includes names people would be familiar with: Airbus SE, the European multinational aerospace corporation; Raytheon Corp., the U.S. defense contractor and Lockheed Martin, another advanced technology company. There are companies in satellite communications like ORBcom, which provides hardware and data services and ViaSat which provides high-speed satellite broadband services for military and commercial markets.
Do you have any other comments?
We see this as an exciting opportunity. It’s a growing sector where with government and big business behind it. We think it’s only going to get bigger.
For more on Harvest ETF products click here.