Investors have been waiting to see what stocks ARK’s Cathie Wood might stuff in her brand-new space economy exchange traded fund (ETF). Military-industrial giants, surely. SPACs, probably. But how will it generate real exposure to new space firms with largely private ownership?
Wood threw a curveball: How about buying stock in John Deere, Netflix, NVidia, and Alibaba?
“Maybe the ARK space etf really was cathie picking stocks after eating a space cake,” investor Ross Gerber mused on Twitter.
“Who knows but it’s definitely random.”
ARK’s choices may seem random, but they reflect a more sophisticated understanding of space’s role in the economy than that of many investors. (ARK declined to weigh in on our analysis of their ETF construction.)
The portfolio of securities (pdf) in the ETF includes many obvious names: Satellite makers (Lockheed Martin) and operators (Iridium), GPS handset manufacturers (Garmin), and even a new space equity (Virgin Galactic). Companies that make space stuff will do well if more space stuff is made.
But the real thesis for space investors, particularly in the near term, is that activity in space around our planet will mainly be adding value back here on Earth. Take the obvious example of broadband internet satellites that companies are investing billions of dollars to loft, with the hopes of recouping their gains from subscribers below.
That’s one obvious reason why this ETF includes Amazon—the company is launching its own satellite network, Kuiper, and has been embracing satellite integration into its cloud computing business, Amazon Web Services. (I was a little disappointed to see the ETF did not include Loral, a sneaky way to invest in a still private Canadian internet satellite network.)
Satellite-enabled computing services might be a relatively small part of Amazon now, but they represent a real opportunity to continue growing AWS. It also helps explain why Netflix, a pioneer in distributed computing, makes the list—it stands to benefit from broader global broadband access.
The bigger idea, however, is that satellite technology will play a more important role in retail than many realize. That helps explain why Alibaba and JD.com, two huge Chinese retailers without known space ambitions, are also on the list. Data are the driving force behind e-commerce—linking customers to the things they want, and companies to the customers they need.
Ann Kim, a managing director at Silicon Valley Bank, argues that the killer app for space will be the collection of evermore useful data—about where people are, what their mobile device is doing, and the environment around them—and deploying it from space.
“Facebook wants to buy a space company that owns all this special data, then they can make very targeted advertisements based on where you’re at, at that moment in time,” Kim says. If that sounds banal, well, Facebook made $84 billion from advertising last year.
Similar logic applies to ETF inclusions like Deere & Co., the manufacturer of agricultural and construction equipment, its Japanese competitor Komatsu, or even Workhorse Group, a company developing electric utility vehicles. Already, satellite data are being used by agricultural companies to track the health of plants, and by farmers to track, monitor, and guide autonomous equipment. These space resources are only becoming more integrated into industrial vehicles.
One signal that this is ARK’s logic is that the largest allocation in the space ETF is to Trimble, firm that sits at the intersection of these trends: It makes hardware to receive GPS data, and automated tools for the agriculture and construction industries, effectively linking the information streaming from space to tangible physical activities on Earth.
Another category represented in the ETF is enabling industries for space, notably chipmakers and 3D printing firms whose work promises to be in larger demand from space manufacturers as more lightweight computers need to be tossed into orbit.
To be sure, a cynical view of this portfolio could claim that some obvious space stocks have been salted with already popular big tech names to keep its valuation boosted. But given the benefit of the doubt, and extending Quartz’s previous logic, the case is there that it’s not all rockets and satellites: Every company is a space company now.