Key Takeaways:
A senior editor at Barron's issued a caution to investors in the Procure Space ETF (UFO), questioning the sustainability of its valuation after the fund surged more than 120% over the past year. The warning highlights a growing debate over whether the excitement for space-themed investments has outpaced underlying financial fundamentals.
"It's trading at more than 100 times earnings," Jack Hough, a senior editor at Barron's, said on a recent episode of the Streetwise podcast, referring to the space ETF. "The cash flows, I have a hard time imagining those hitting right away."
Hough's critique focused on several key points for the fund, which has significantly outpaced the S&P 500's 18% return over the same period. He noted the Procure Space ETF's forward price-to-earnings multiple exceeds 100x, a valuation that suggests flawless execution is already priced in. Furthermore, he pointed to the fund's 0.75% expense ratio as a considerable drag on long-term returns compared to broad-market index funds.
The core of the warning centers on the speculative nature of the space economy. While companies in the ETF are involved in exciting technologies like reusable rockets and satellite constellations, Hough argued that their most ambitious projects, such as space mining or colonization, are unlikely to generate significant cash flow for many years. He suggested investors seeking exposure to the sector might be better served by owning established aerospace and defense companies that generate substantial revenue today while also participating in the space economy.
The caution from Barron's arrives as retail and institutional interest in the space sector remains high, fueled by the anticipation of a potential SpaceX IPO and the success of other ventures. Funds like SPDR S&P Kensho Final Frontiers ETF (ROKT) and ARK Space Exploration & Innovation ETF (ARKX) have also gathered significant assets by offering investors a way to bet on the final frontier.
For investors in UFO, the warning serves as a reminder to weigh the fund's high-growth narrative against its stretched valuation metrics. The fund's future performance will test whether its portfolio of space innovators can grow into their earnings multiples, a challenge highlighted by the caution from one of the industry's veteran financial publications.
This article is for informational purposes only and does not constitute investment advice.
