Emerge partners with ARK on actively managed space exploration ETF

Apr 1st, 2021 | By | Category: Equities

Toronto-based Emerge Canada has expanded its partnership with New York-based ARK Investment Management with the launch of an actively managed ETF targeting companies linked to the space industry.

Emerge partners with ARK on actively managed space exploration ETF

The fund provides actively managed exposure to companies linked to the space industry.

The Emerge ARK Space Exploration ETF has been listed on Canada’s NEO Exchange and is available to trade in Canadian dollar (EAXP CN) and US dollar (EAXP.U CN) share classes.

The fund comes with an estimated management expense ratio of 1.15%.

The fund is managed by Emerge but will directly mirror the strategy behind the US-listed ARK Space Exploration & Innovation ETF (ARKX US) which ARK debuted on Cboe BZX Exchange at the end of March.

ARKX has a relatively free-range mandate with permission to invest in companies of any market capitalization, encompassing both developed and emerging market listings.

The strategy involves holding between 40 and 55 companies aligned with the space exploration theme, which ARK defines as leading, enabling, or benefitting from technologically enabled products and services that occur beyond the surface of the Earth.

ARK classifies space-related companies into four categories: orbital aerospace, suborbital aerospace, enabling technologies, and aerospace beneficiaries.

The orbital aerospace category provides one of the purest plays on the space exploration theme, including firms that launch, make, service, or operate platforms in orbital space, including satellites and launch vehicles. This category currently commands approximately a quarter of the fund’s total weight.

The suborbital aerospace category offers another pure-play on the theme, including firms that launch, make, service, or operate platforms in suborbital space. The category currently accounts for an approximate weight of just 5%.

Companies that develop aerospace-enabling technologies also make up around a quarter of the total fund holdings. These firms may not be considered directly linked to the space exploration theme, but rather cover a broad range of other disruptive technology themes including artificial intelligence, robotics, 3D printing, materials, and energy storage.

Aerospace beneficiaries account for the largest exposure with a weight of around 40%; however, this category is also indirectly linked to the space exploration theme, encompassing firms whose operations stand to benefit from aerospace activities. Examples of such companies include those operating in the internet access, GPS, construction, imaging, drones, air taxis, and electric aviation industries. Even agriculture companies, which utilize satellite imagery for weather forecasts, are eligible for selection.

ARK combines top-down information (growth rates, cost declines, unit economics, sizing of markets, price levels, and technology cycle trends) with bottom-up criteria (fundamental and quantitative metrics such as companies’ revenue growth, profitability, and return on invested capital) when selecting constituents for the portfolio.

ESG analysis will be considered but it will not be a driving force in security selection.

Cathie Wood, Founder, CEO, and CIO of ARK Investment Management, said: “We believe the space industry is primed for take-off. Thanks to advancements in deep learning, mobile connectivity, sensors, 3D printing, and robotics, costs that have been ballooning for decades are beginning to decline. As a result, the number of satellite launches and rocket landings is proliferating. We believe that the orbital aerospace revenue opportunity alone – including satellite connectivity and hypersonic flight – will exceed $370 billion annually.”

Lisa Langley, President and CEO of Emerge Canada, added: “We are honoured to partner with ARK again on a Canadian first: the first actively managed Space ETF in Canada for Canadian investors. Emerge is excited to continue to be Canada’s Innovation partner. Cathie Wood’s team is uniquely prepared for the challenge of identifying opportunities that will further space exploration. Investing in this area is one way we can all experience the excitement of space exploration, its benefits to life on earth, and to help everyone learn about the future.”

Emerge offers a further five ETFs in Canada which were launched in July 2019 and also provide exposure to disruptive technology ETF strategies developed by ARK.

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