This Space-Themed ETF Isn’t Ready for Blastoff

The Procure House ETF (NASDAQ:UFO) has a terrific ticker and an thrilling theme (house exploration), however it doesn’t appear to be it’s fairly prepared for blastoff but. Whereas there are some issues to love about it, I’m cautious about this space-themed ETF primarily based on its underwhelming efficiency monitor file, 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 lately, the house financial system has additionally captured business curiosity like by no means earlier than. UFO, the Procure House ETF, might present diversification past the restrictions of solely earthbound corporations.”

That is among the many extra inventive 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 referred to as the S-Community House Index. No less than 80% of the index’s weight is allotted in direction of corporations that derive nearly all of their income from space-related industries.

These house shares can embrace rocket and satellite tv for pc producers and operators, corporations concerned in satellite-based telecommunications, radio and tv broadcasting, house expertise and {hardware}, floor tools manufacturing depending on satellite tv for pc methods, and space-based imagery and intelligence providers.

Moreover, the index supplier believes that extra space-related industries might emerge sooner or later, similar to house tourism, space-based navy and protection methods, and house useful resource exploration and extraction. These are all thrilling use circumstances, however do not forget that none of them have emerged as actually viable companies but.

Otherworldly Holdings 

So, what does UFO’s portfolio of house shares appear to be? The fund owns 35 shares, and its prime 10 holdings account for slightly below half of its property. Under, you possibly can check out an summary of UFO’s prime 10 holdings utilizing TipRanks’ holdings software.

The fund’s prime holding is Sirius XM Holdings (NASDAQ:SIRI), the satellite tv for pc radio supplier that lately 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 expertise in every little thing from its navigation methods to its watches and health trackers, is the second-largest holding.

UFO’s holdings run the gamut from some smart and compelling decisions to some extra questionable ones. I like the truth that UFO’s portfolio consists of various 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 creating cutting-edge space-related applied sciences, have sturdy and steady 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 value of over $50 a share in 2021 earlier than plummeting again to Earth. The inventory at present trades for below $2 a share.

In actual fact, Virgin Galactic has a Sensible Rating of simply 1 out of 10, the bottom attainable Sensible Rating. The Sensible Rating is a proprietary quantitative inventory scoring system created by TipRanks. It provides shares a rating from 1 to 10 primarily based 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 Sensible Scores like Sirius XM, Garmin, and Trimble (NASDAQ:TRMB), it additionally owns its fair proportion of extra questionable holdings similar to Virgin Galactic, Blacksky Know-how (NYSE:BKSY), Terran Orbital (NYSE:LLAP), and Ast Spacemobile (NASDAQ:ASTS) which function poor Underperform-equivalent Sensible Scores of 1 and a pair of.

Altogether, one must say that UFO’s portfolio is one thing of a blended bag. Its impartial Sensible 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 in relation to its efficiency since its inception in 2019. Not solely has the fund badly underperformed the broader market in that point, however it has really misplaced over a 3rd of its worth since launching in 2019.

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

UFO ETF’s Excessive Expense Ratio

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

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

A part of the explanation that UFO costs such a excessive price is that it’s a comparatively small ETF with simply $35.6 million in property below administration (AUM), however that is nonetheless fairly steep for an index fund.

Is UFO Inventory a Purchase, In response to Analysts?

Turning to Wall Avenue, UFO earns a Average Purchase consensus score primarily based on 21 Buys, 15 Holds, and one Promote score assigned up to now three months. The typical UFO inventory value 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 singular and promising long-term theme and invests in shares with several types of publicity to house. It owns some sturdy shares like Garmin and the protection corporations mentioned above. Wall Avenue analysts additionally appear to suppose 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 various much less compelling holdings with poor Sensible Scores. The ETF’s efficiency since its 2019 inception has been uninspiring, to say the least, and it’s onerous to justify its steep 0.75% expense ratio primarily based on this efficiency. House is a promising long-term theme that ought to come into extra outstanding focus over time, however in the interim, UFO doesn’t look like a compelling Purchase.

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