The rise of ASX ETF investing has seen numerous new funds hit the market.
Many of these funds now focus on niche themes or sectors, aiming to capture gains in fast growing industries.
The SpaceX IPO has made plenty of headlines, and also influenced the creation of two new space themed ASX ETFs.
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The pros and cons of thematic ASX ETFs
While this provides an exciting opportunity, the challenge for investors is identifying which themes and funds are targeting sectors poised for long term growth, rather than a short-lived burst of investor interest.
There have been plenty of examples of themes seemingly poised for growth, fizzling out quickly.
Examples include 3D printing companies in the 2010s, legalised cannabis in certain countries and more recently buy-now-pay-later stocks.
These niche themes captured plenty of attention for a short period of time alongside real financial investment.
However time has shown that these were short term crazes rather than long term opportunities.
On the other hand, themes such as the internet, cloud computing and smartphones all grew from emerging trends into long-term, vital industries.
What investors should consider
For investors considering emerging themes, some key considerations include:
- If the theme addresses or solves a problem
- How large could the end market could realistically become
- If the theme will still matter in 10-20 years
- If the underlying companies are already priced for perfection.
With these considerations in mind, let’s look at the new theme generating excitement – space.
Space ASX ETFs
The SpaceX IPO has generated extensive coverage all over the world.
Interest in this sector has resulted in two new space themed ASX ETFs to hit the market:
- Betashares Space Industry ETF (ASX: RCKT)
- Global X Space Tech ETF (ASX: MOON).
RCKT ETF focuses on companies whose core businesses are directly tied to the space economy. This includes rocket launches, satellite operators, space infrastructure and space-related data services.
It is designed to give investors concentrated exposure to the commercialisation of space. It also includes a fast-track mechanism for adding new space IPOs.
MOON ETF on the other hand, invests across the wider space technology ecosystem, including launch systems, satellite infrastructure, communications networks and geospatial data businesses.
This may result in exposure to a broader range of technology companies that benefit from space-related growth, rather than only pure-play space operators
Are they worth investing in?
Space-themed ETFs such as RCKT and MOON offer investors exposure to what could become one of the world’s next major growth industries.
As satellite networks, space-based communications, Earth observation technologies and commercial space exploration continue to develop, companies operating in these areas could benefit from decades of investment and innovation.
However, the sector also carries significant risks.
Many space-related businesses are still in the early stages of commercialisation, meaning profitability can be uncertain and valuations can be heavily influenced by investor sentiment.
The industry’s growth also depends on technological breakthroughs, government spending and regulatory support, which can create periods of volatility.
As a result, space ETFs have the potential to deliver strong long-term returns if the industry fulfils its promise, but investors should be prepared for a potentially bumpy ride along the way.