Conquering space, still a highly confined space
“The Echiquier Space B fund has risen by 58 % since1 January (as at 20 November)”
The battle to conquer space is heating up and gathering pace. The race is on, and so is the stock market. “Moon business” fever is beginning to invade trading floors. And since Elon Musk has been talking in the ear of the future President of the United States, the conquest of space has become even more of an El Dorado.
Few theme funds invest in the niche of so-called ‘space’ companies. Launched in May 2021, the Echiquier Space B fund is blowing away the screens and the counters with an exceptional and rare performance of 58.1% in less than 11 months (in 2024, B share). Of course, past performance is no guide to future performance. Admittedly, the craze for AI stocks has helped to boost performance, with popular holdings such as Nvidia, Tsmc, Amazon and Alphabet in the portfolio, companies which are equipping or participating in the conquest of space with their cutting-edge technology. But some pure space stocks are still posting more solid rises, even in triple figures (see below)!
The fund boasts an annualised performance of close to 7% (after 3 ½ years) and focuses its strategy on long-term trends. The aim is to capture the momentum of technological and economic transformation on an international scale, always with a long-term horizon.
Before, missions into the cosmos were the prerogative of the great powers. But the era of artificial intelligence has begun, with more profound and massive effects in most areas of activity. The conquest of space is one of them, and has been given a boost by an ever-growing craze, mainly on the other side of the Atlantic.
A few years ago, some forward-thinking businessmen developed a taste for space adventure, in the midst of their already prosperous activities. What started out as the whims of billionaires soon turned into a business, referring to the space adventures of Elon Musk (SpaceX), Jeff Bezos (Blue Origin) and Richard Branson (Virgin Orbit and Virgin Galactic), which met with more mixed success, with the subliminal message that investors need to bet on the right horses. Because, as with the emergence of the Internet, the number of companies will multiply, and some will drink the cup.
“Estimated at 630 billion dollars in 2023, development of the spacetech industry is expected to reach 1,800 billion dollars by 2045” Elon Musk, who is always in the right or on the right side of things, even in the last American elections, launched SpaceX, already one of the best-valued private companies (still in the private sector, as the boss continues to raise capital with ease). Currently valued at more than $200 billion, its valuation could exceed $250 billion in a forthcoming fund-raising round, according to the Financial Times. Starlink is no stranger to success, with over 4 million subscribers and annual sales in excess of $6 billion, according to Quilty Analytics.
2024 can already be described as a stratospheric year,” explains Christophe Pouchoy, manager of the La Financière de l’Echiquier fund. Space projects and initiatives have multiplied this year (USA, India, China, Japan, Russia, Europe…). Each year between 2019 and 2024, the number of launches has already grown by 50%. This year, they number in the hundreds, with both commercial and entrepreneurial aims. The race is on. In addition to the competition for exploration missions, a real battle is being waged in the development of the spacetech industry. The volume of sales is estimated at 630 billion dollars in 2023 and 1,800 billion dollars in 2045 , according to the expert from L’Echiquier. Overall, this time in terms of revenue, these new industries are expected to top the $1 trillion mark by 2040.
The two main objectives of the spacetech industry are to colonise space in order to make life possible on other planets, and to improve life on Earth by using satellites to conduct various experiments. Mining, manufacturing and exploration are no longer the stuff of science fiction. Communications systems and observations of the Earth from space are already part of our daily lives. The manufacture of satellites and carrier rockets is booming. Software companies are jumping on the bandwagon of industrial simulation programmes and cloud computing in space.
These companies, which are pushing back our limits, are taking advantage of the boom in projects for private space stations in low-Earth orbit and the new race to the Moon, which are fuelling the need for spacecraft capable of carrying crews. A number of firms are gearing up to meet this future demand, which will be just as challenging. For journeys to the moon, we have to combine this with the lunar night, which lasts 14 Earth days, and at -120°C, electronic components degrade very quickly.
Best performance: +291%
Nearly a third of the companies in the Echiquier Space fund (share) still have a market capitalisation of less than 5 billion dollars (small caps) and less than a quarter are worth more than 500 billion. Positioning the portfolio on pure space, industrial and technology stocks has enabled the manager to capture the sharp rise in these sub-sectors, with the portfolio positioned on pure space, aerospace and defence equipment manufacturers and geospatial database providers, for example. This positioning has produced very good results (as a reminder: +58% YTD for the fund in 2024). With good pickings in pure space stocks such as AST SPACEMOBILE (+291%), REDWIRE (+287%) and ROCKET LAB (+265%)[1] which made a strong contribution to the fund’s performance, after suffering in the first quarter from macroeconomic concerns.
Future positioning
The current geopolitical environment is stimulating defence capabilities and investment in military space. “We have increased the fund’s exposure to this sector by selecting defence companies with attractive space assets. While the fall in interest rates is a relief for space companies with little or no profitability, who are sensitive to financing conditions,” explains Christophe Pouchoy.
The fund has a strong American bias, as the US is the undisputed leader with over 5,000 listed and unlisted companies in the spacetech industry (operators and manufacturers of satellites, components, launchers, etc.). The magic of the United States lies in the fact that public procurement is totally driven by NASA, with a high level of funding for American industry from the powerful agency. The agency then makes real-world use of the technologies developed by this industry. A gigantic turnover is created, a source of durability and stability.
[1] Year-to-date to 20/11/2024, Bloomberg
