SpaceX IPO Boosts Tiny Space ETF With Record Surge in Inflows

The looming market debut of Elon Musk's rocket company SpaceX has sparked a rush of capital into smaller space ventures with investors eager to find a way to hitch a ride onto what could be the biggest listing ever.

The Procure Space ETF (ticker: UFO), a fund with a market value of about $415 million, pulled in nearly $175 million for the first quarter of the year, the largest inflows since its inception in 2019, according to data compiled by Bloomberg. The influx comes as investors search for ways into SpaceX, the space exploration, satellite and artificial intelligence company that has become the most eagerly anticipated initial public offering in years.

"The euphoria around potentially tapping into a trillion-dollar IPO is really having an impact," said Philip Blancato, chief market strategist at Osaic Holdings, the 15th-largest institutional holder of the ETF. He added that his investment advisory firm was seeing strong demand from investors wanting access to SpaceX.

Even five years ago, investing in the UFO ETF would have struck him as a "crazy" idea, Blancato said. However, that has changed as global government stimulus is expected to drive the sector higher, he added.

A Bank of America Corp. basket of US stocks that are key players and potential beneficiaries of the space race has climbed 23% this year, compared to a 3.4% drop in the S&P 500 Index and a 4.2% decline in the Nasdaq 100.

The biggest percentage gainer in the BofA basket is Satellogic Inc. The company, which uses satellites to map the earth, is backed by Steven Mnuchin's Liberty Strategic Capital and Cantor Fitzgerald LP -- the US investment bank run by the children of Commerce Secretary Howard Lutnick. The stock has jumped nearly 280% this year. Other large gainers include satellite communications company Iridium Communications Inc. and Planet Labs PBC.

SpaceX's offering could take place as early as June, after the company filed confidentially for an IPO and boosted its target valuation above $2 trillionBloomberg Terminal, according to people familiar with the matter.

The offering comes as excitement for space exploration has been rising. A NASA crew of four astronauts aboard the Artemis II capsule took the first voyage toward the moon in more than 50 years. On Monday, they traveled further in space than anyone in history.

Meanwhile, both the US and China are spending billions to put humans back on the moon, fueling investment across the sector.

"We've got a real space race 2.0 going on as we speak, for who is going to start to build out a permanent presence first on the moon," said Andrew Chanin, chief executive officer at ProcureAM, which manages the UFO ETF. The fund already has some exposure to SpaceX through Charlie Ergen's satellite and internet services provider EchoStar Corp., which holds a small stake in the Musk venture.

While space tourism -- with high profile efforts from Amazon.com Inc. founder Jeff Bezos' Blue Origin and Richard Branson-founded Virgin Galactic Holdings Inc. -- captured some investor interest several years back, the focus has moved to satellites, communications technology, and emerging areas such as space-based data centers and lunar infrastructure, Chanin said.

Then there is the overlap with another industry that has steadily emerged as an investor favorite in recent years: defense.

"You're not building guns and bomb anymore," Blancato said. "You're building satellites and drones that are very different than what we've done in the past."

The primary contractors for NASA's Artemis II moon mission include Boeing Co., Lockheed Martin Corp., Northrop Grumman Corp. and L3Harris Technologies Inc. -- which are also major defense contractors for the US military.

Still, market watchers largely pointed to SpaceX's imminent arrival to public markets and Musk's star power as the main drivers behind the surge in investor interest in the sector.

"The fact that famous rich people are investing in the space sector is giving it the kind of attention it hasn't had in decades." said Matt Maley, chief market strategist at Miller Tabak + Co.