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David England | Space funds 2: The next generation
Column | Eye on the Market

David England | Space funds 2: The next generation

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Last week, I introduced you to the popular Space sector and explored the top-performing ETF UFO-Procure Space ETF and its holdings. Many asked, why the popularity in this sector? My answer, Thomson Reuters reports a massive $415 billion was spent on the space industry just in 2019. That is up 79% since 2009. Also, Morgan Stanley expects the global space industry to generate over $1 trillion in revenues by 2040.

So, today we will continue this theme and check out the holdings of the second performing ETF, ROKT-SPDR Kenshō Final Frontiers ETF. When asked why I am not disclosing the holdings of Elon Musk’s SpaceX or why it is not in these ETFs? My answer: SpaceX is not included because it is currently privately held, making it off-limits for ETFs.

Let’s revisit the two top funds UFO and ROKT and update their performance. Plus, introduce you to the very important correlation tool.

Space Race Funds II

To see the performance of these top companies compared to the market (SPX), I designed a chart beginning on March 24, running to real-time. UFO-Procure Space ETF took top honors with an impressive 96% return. Next, ROKT-SPDR Kenshō Final Frontiers ETF is up 77%. The market (SPX) — the green shaded area — is up 72%.

Per correlation, if a security trades in lockstep to the market, the correlation would be 1.00. If a security trades opposite of the market, the correlation would be -1.00. The bottom two charts show how each fund is correlated to the market (SPX) returns.

In the middle box, you can see UFO has a .81 correlation while in the bottom box, ROKT has a .79 correlation. This is a very valuable tool when trading securities. Why? This shows how much a security moves with the index it follows. Always research which index your security has the closest correlation to.

Next, I will identify the top three companies by portfolio allocation in ROKT-SPDR Kenshō Final Frontiers ETF including a brief description, including the year founded and headquarter locations are as follows:

  • HON-Honeywell International Inc. is a technology and manufacturing company operating through four segments: Aerospace, Home and Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions. The company's aerospace segment is relevant supplying products, software, and services for aircraft and vehicles in the space sector. The company was incorporated in 1985 and is headquartered in Charlotte, North Carolina.
  • HEI-HEICO Corporation is a rapidly growing aerospace and electronics company, found in aircraft, spacecraft, defense equipment, medical equipment, and telecommunications systems. Their electronic technologies group designs and manufactures mission-critical niche electronic, electro-optical, microwave, and other components found in aviation, broadcast, defense, homeland security, medical, space, telecom, and other complex equipment used worldwide. HEICO Corporation was founded in 1957 and is headquartered in Hollywood, Florida.
  • TDY-Teledyne Technologies Inc. provides technologies for industrial growth markets including aerospace and defense, factory automation, air, and water quality environmental monitoring, electronics design and development, oceanographic research, deepwater oil and gas exploration and production, medical imaging, and pharmaceutical research. Teledyne Technologies Incorporated was founded in 1960 and is headquartered in Thousand Oaks, California.
  • RTX- Raytheon Technologies Corporation is an aerospace and defense company, providing advanced systems and services for commercial, military, and government customers worldwide. It operates in four areas: Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space, and Raytheon Missiles & Defense. The company is headquartered in Waltham, Massachusetts.
EOM ROKT top companies

To see the performance of these top companies compared to the market (SPX), I designed a chart beginning on March 24, running to real-time.

HON-Honeywell International Inc. leads with a respectable 97% return. HEI-HEICO Corporation was not far behind, up 83%. TDY-Teledyne Technologies Inc. is up 63%. The laggard in the group, RTX- Raytheon Technologies Corporation is only up 55%. The market (SPX) — the green shaded area — is up 72%. Note the action since last week’s ARK Invest new Space ETF announcement-vertical black-slotted line. Since the announcement, three of the four companies have sold off and Helco is falling like a rock.

Here are the action points: During this timeframe, two of the four companies outperformed the market (SPX). I see tremendous income opportunities in this sector and am monitoring these companies, waiting for a pullback. When it happens, I will rely on my Simple Simon buy and sell system to help with my trade decisions.

Take the time to do your due diligence on each fund, which index they track, and its holdings. Research each company, determine exactly what they do and how they make their profits. Identify the remaining top companies to see if one may be next to run like HON and HEI.

In full disclosure, I do not hold any securities listed.

David O. England is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to thetraderseye@gmail.com.

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