By Harvest Portfolios Group
Paul MacDonald, CFA
Chief Investment Officer
The new space race is as much about innovation, growth and private enterprise as the old one was about the United States, the former Soviet Union and power politics.
As global manufacturers and aerospace companies play a bigger role exploring inner and outer space, governments are stepping back and turning the nuts and bolts of getting there over to them.
The old space race was about nationalism and one-upmanship. The new one is about business opportunities, whether launching satellites for 5G communications and fixing them in orbit to rocket propulsion systems and landing modules.
That was the message delivered by Paul MacDonald, Chief Investment Officer of Harvest Portfolios Group in Oakville, Ont. in a recent webinar for investment advisors.
“When Harvest thinks about space, we think less about governments and more about companies that are delivering services for this industry.”
Mr. Macdonald discussed the sector’s prospects and why its potential led Harvest to launch Canada’s first index-based space industry exchanged traded fund (ETF) in early April 2021. The Harvest Space Innovation Index ETF (TSX: ORBT) invests in 40 large 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 follows an index designed by Solactive AG and has a 0.50% management fee.
Mr. MacDonald said the Harvest ETF holds globally diversified aerospace and defense companies with strong businesses, a history of profitability and financial resources to exploit the opportunity. They are making rocket propulsion systems and landing craft, electronic operating systems and launching and maintaining satellites.
About 40% are mega cap stocks valued at over $10 billion. Another 40% are between $1 billion and $10 billion and the remaining 20% are between $100 million and $1billion.
“So, we have scale and a true cross section of the industry,” he said.
Satellites and related equipment are a large segment. The satellites are used for communication, monitoring the weather and GPS systems for phones, cars and marine navigation. This was once an area dominated by governments but about 60% are now in the hands of private enterprise.
“Why is that important?”, asked Mr. MacDonald, “Satellite launches are expected to grow exponentially. There are currently 3,300 in orbit with a forecast of 10,000 launched over the next decade. We have significant exposure to companies that have the scale and scope to dominate.”
Another growth area is space exploration with 300 missions planned for the Moon, Mars and deeper space in the next decade. The United States has a four stage Artemis Moon project, designed to land people on the moon by 2024. The project includes a reusable orbiting docking station which will be used as a base for jumping off to Mars.
Beyond 2030, space habitats, interspace travel and manufacturing in space are growth areas. Mr. MacDonald said Virgin Galactic has so far signed up 600 people for a $400,000 orbital trip flight in 2024.
Mr. MacDonald highlighted a few companies in the fund:
Avio S.p.A, founded in 1908, is an Italian company with a market value of US$385 million. It makes rocket propulsion systems used in the European Space Agency’s (ESA) Ariane and Vega rockets.
Iridium Communications Inc., with a US $5.3 billion market value makes crosslinked satellites which provide phone services used in shipping and remote regions as well as the aviation industry. It is a leader in global air traffic control systems.
Thales SA, a French company with a US$21 billion market value, is a diversified aerospace and defence contractor. It specializes in electronics and is also the second largest manufacturer of civilian satellites.
GomSpace, a Danish company, is the smallest company in the ETF with a value of US$101 million. It is a supplier of small satellites which are cheaper to build and launch. Its customers include universities and other research organizations as well as governments. Its expertise includes systems integration and advanced miniaturized radio technology .
Lockheed Martin Corp., the aerospace and defence company with a market value of US $105 billion, has a long history of involvement with NASA. It was part of the recent NASA trip to Mars and is involved in the Artemis project through the Orion crew vehicle. It is building the vehicle which will be launched in November 2021 and is the first unmanned craft to land on the Moon.
Mr. MacDonald summed up the space sector as one with good prospects that play to the core Harvest philosophy of combining income-based strategies with the growth offered by new technologies.
“It is about innovation. The Harvest Space Innovation Index ETF is one of the best ways to get a pure play in the companies that are directly engaged in this exciting field.
For more on Harvest ETF products click here.