UFO: This Space-Themed ETF Isn’t Ready for Blastoff

The Procure House ETF (NASDAQ:UFO) has an excellent ticker and an thrilling theme (house exploration), however it doesn’t seem like it’s fairly prepared for blastoff but. Whereas there are some issues to love about it, I’m cautious about this space-themed ETF based mostly on its underwhelming efficiency monitor document, a few of its holdings, and its comparatively excessive expense ratio. 

What’s the UFO ETF’s Technique?

Procure says, “House has all the time captured human curiosity, however not too long ago, the house financial system has additionally captured industrial curiosity like by no means earlier than. UFO, the Procure House ETF, might present diversification past the constraints of solely earthbound corporations.” 

That is among the many extra artistic descriptions I’ve come throughout for an ETF, however what does it entail? 

UFO invests in a portfolio of space-related corporations. It tracks an index known as the S-Community House Index. At the least 80% of the index’s weight is allotted in direction of corporations that derive the vast majority of their income from space-related industries.

These house shares can embody rocket and satellite tv for pc producers and operators, corporations concerned in satellite-based telecommunications, radio and tv broadcasting, house know-how and {hardware}, floor gear manufacturing depending on satellite tv for pc programs, and space-based imagery and intelligence companies. 

Moreover, the index supplier believes that extra space-related industries might emerge sooner or later, resembling house tourism, space-based army and protection programs, and house useful resource exploration and extraction. These are all thrilling use instances, however keep in mind that none of them have emerged as really viable companies but. 

Otherworldly Holdings 

So, what does UFO’s portfolio of house shares seem like? The fund owns 35 shares, and its prime 10 holdings account for slightly below half of its belongings. Beneath, you possibly can check out an outline of UFO’s prime 10 holdings utilizing TipRanks’ holdings instrument. 

The fund’s prime holding is Sirius XM Holdings (NASDAQ:SIRI), the satellite tv for pc radio supplier that not too long ago loved a surge in curiosity when 13F filings revealed that Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) had invested within the firm. Garmin (NYSE:GRMN), which makes use of GPS know-how in the whole lot from its navigation programs to its watches and health trackers, is the second-largest holding. 

UFO’s holdings run the gamut from some wise and compelling decisions to some extra questionable ones. I like the truth that UFO’s portfolio contains quite a few main protection and aerospace shares like Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC), and RTX Company (NYSE:RTX). These corporations are growing cutting-edge space-related applied sciences, have robust and secure earnings, and luxuriate in important moats round their companies. 

However, I’m much less excited by prime holdings like Virgin Galactic (NASDAQ:SPCE). Regardless of loads of hype, the house tourism firm has failed to show a revenue. It soared to a worth of over $50 a share in 2021 earlier than plummeting again to Earth. The inventory at present trades for beneath $2 a share. 

In truth, Virgin Galactic has a Good Rating of simply 1 out of 10, the bottom doable Good Rating. The Good Rating is a proprietary quantitative inventory scoring system created by TipRanks. It provides shares a rating from 1 to 10 based mostly on eight market key elements. A rating of 8 or above is equal to an Outperform score. In the meantime, a rating of 1, 2, or 3 is taken into account equal to an Underperform score. 

Whereas UFO owns some shares with Outperform-equivalent Good Scores like Sirius XM, Garmin, and Trimble (NASDAQ:TRMB), it additionally owns its fair proportion of extra questionable holdings resembling Virgin Galactic, Blacksky Expertise (NYSE:BKSY), Terran Orbital (NYSE:LLAP), and Ast Spacemobile (NASDAQ:ASTS) which function poor Underperform-equivalent Good Scores of 1 and a couple of.  

Altogether, one must say that UFO’s portfolio is one thing of a combined bag. Its impartial Good Rating of 6 out of 10 displays this.

Has UFO’s Efficiency Been Out of This World?

Whereas the theme and concepts are fascinating, sadly, UFO hasn’t precisely gone into orbit with regards to its efficiency since its inception in 2019. Not solely has the fund badly underperformed the broader market in that point, however it has truly misplaced over a 3rd of its worth since launching in 2019.

UFO managed to climb 7.2% in 2021, in the course of the low rate of interest surroundings and a time when many speculative shares had been doing nicely, however it fell 25.9% in 2022 and is down one other 16.1% this 12 months. 

UFO ETF’s Excessive Expense Ratio

Sadly, these outcomes don’t justify the comparatively excessive expense ratio of 0.75% that UFO prices. This expense ratio implies that an investor placing $10,000 into UFO must pay $75 in charges throughout their first 12 months as an investor within the fund. 

Assuming that the fund was to return 5% per 12 months going ahead and keep this 0.75% expense ratio, this investor would pay $931 in charges over the course of a decade. 

A part of the rationale that UFO prices such a excessive payment is that it’s a comparatively small ETF with simply $35.6 million in belongings beneath administration (AUM), however that is nonetheless fairly steep for an index fund.

Is UFO Inventory a Purchase, In line with Analysts?

Turning to Wall Road, UFO earns a Reasonable Purchase consensus score based mostly on 21 Buys, 15 Holds, and one Promote score assigned up to now three months. The typical UFO inventory worth goal of $22.38 implies 38.7% upside potential.

Not Prepared for Blastoff But

The UFO ETF has some good issues going for it. It gives publicity to a novel and promising long-term theme and invests in shares with various kinds of publicity to house. It owns some robust shares like Garmin and the protection corporations mentioned above. Wall Road analysts additionally appear to assume that the ETF has room for upside. Moreover, UFO pays a dividend and at present yields 2.8%. 

However, there are additionally loads of causes for warning, main me to remain on the sidelines for now. It owns quite a few much less compelling holdings with poor Good Scores. The ETF’s efficiency since its 2019 inception has been uninspiring, to say the least, and it’s laborious to justify its steep 0.75% expense ratio based mostly on this efficiency. House is a promising long-term theme that ought to come into extra distinguished focus over time, however in the intervening time, UFO doesn’t appear to be a compelling Purchase.

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