Investment Idea

Universe as Total Available Market

Mikael Syding
15/07/2021 | 4 min read

Sir Richard Branson's successful space trip this weekend was a big step for his boyhood dream that in a way could finally be fulfilled, but in practice a yawn for humanity, or at least the stock market.

Sir Richard Branson's successful space trip this weekend was a big step for his boyhood dream that in a way could finally be fulfilled, but in practice a yawn for humanity, or at least the stock market. You can routinely experience weightlessness by flying empty cargo planes in an arc like a thrown ball. And to be trapped in a closet with a vacuum all around and just barely see the curvature of the earth, without even completing a revolution around the earth, is not really much more space travel than a normal Atlantic flight. Just tighter. Well, and a moment of freedom from the experience of gravity of course, but on the whole, the trip hardly means any revolution, which is reflected in the measured price reaction. Despite the landslide in July, the Virgin Galactics (SPCE) price is still higher after the throwing parabola through the higher air layers, than it did last May.

Do not misunderstand me. It is difficult, and still dangerous, to plunge up to 90 km from sea level, 10 times as high as Mount Everest. Not to mention expensive and quite unnecessary, ie just like many other pleasures. Tickets do not cost that much right now. In fact, a trip to the Maldives or Hamptons over the summer costs more for a typical billionaire family than the relatively meager quarter of a million dollars SPCE takes for ninety minutes in Virgin's white vacuum boat. However, the cost of the trip is supposed to be an order of magnitude higher, not to mention the potential market price for the first trips. But more on that very soon.

For Branson himself and his brand Virgin, it is of course invaluable to be not only early but just first. But just as BMW and Aston Martin stated in a couple of high-profile campaigns for used cars that would even have made Lap Power's founder blush, "You know you're not the first", so I do not think Jeff Bezos cares that he comes second. For him, it's a matter of money, not honor, and Bezos has a 50 times larger account than Branson. No matter what their different strategies are, Bezos will in a week become a member of the small exclusive 9-mile club for rich guys.

On Tuesday the 20th of July, Jeff and his brother Mark and a few others will take off with Blue Origin, then with the plan to become the first private individuals to cross the Kármán line with a private company (100km up), ie the more official border to space than what Branson achieved. In fact, Bezos not only becomes richest, but also accounts for the original journey into space for a private player. Virgin or Origin make up for most outsiders in terms of penetrating space, but obviously not for the buyer who offered $ 28 million for a seat on Bezo's spacecraft, 100 times more than the economy seats on Virgin Galactic. But then he gets the largest window in space to see the Kármán line from above as well.

The billionaires' entertainment strips will hopefully attract as much capital as attention to the sector. It is needed because it is a long way to go until it is safe and cheap enough for space tourism to carry itself financially. Admittedly, there are enough people who can afford a space shot, but if you are not even among the top 100, the claustrophobic evocative atmospheric surfing quickly loses its appeal. There is nothing to do up there. No, it takes a space hotel for that, a room with a view, and definitely something more creative than floating around in a minimal cabin for a few minutes.

Fortunately, the sector consists of so much more than SPCE. In addition, it is the path to more sustainable space travel that you as an investor want, ie the constant, commercially well-founded, technological advancement that the companies in Solactives Space Technology Index stand for. One of the holy grails in the financial markets is independent sources of return. There, the space sector is in a class of its own, with cyclically insensitive tax-financed customers and a theoretically insignificant future potential. The companies grow as a group just a little faster than the economy as a whole, but it never ends. Space never ends. The sector may thus constitute the ultimate pension insurance. But it is of course possible to make relatively short, quick visits in the sector as well, just when it is at its hottest or if the rest of the market feels vulnerable.

Via its tracker certificate based on the Solactive Space Technology Index, Vontobel has made it easy to supplement its other technology investments, in e.g. e-commerce, software, IT consultants and computer / internet related hardware, with really forward-leaning advanced technology for the space age. Solactive's Space Technology Index contains 20 companies, which are reweighted twice a year to equal weight (ie 5 percent each). Right now, Virgin Galactic, Boeing, Loral Space and Sirius XM weigh the most in the index. Viasat, DISH, Safran, Teledyne and Ball have the least weight at present, but soon they will all be re-weighted to 5 percent again.

EN-Allocation - 2021-07-15

Despite the high-tech elements and the potential in the really long term, there are several defensive elements in the composition. Many of the companies have the US military as a major customer, and due to growing geopolitical tensions as China's economy grows to catch up with the US, defense funding is not expected to be reduced, quite the contrary. Alongside companies in the more traditional but fast-growing technology sectors internet, games, software, computers and telephones, Vontobel's space tracker is an interesting complement. On the one hand, genuine high-tech with a universe like Total Available Market, on the other hand companies with the US Federal Reserve behind them when the US military is to defend the nation's interests when a new world order emerges. You can buy the index with both hands.

The index (“Solactive Space Technology Index”) is a performance index calculated by Solactive AG, which means that dividends are reinvested in the index on a net basis ("net total return"). Through tracker certificates like this, investors can participate almost one by one in the price increases of the underlying assets, but of course also in any price falls. The management fee is 1.20 percent per year and investors also bear the credit risk of the issuer (Vontobel). Note that the index is calculated in US dollars so as an investor you are exposed to changes in the exchange rate between US dollars (or a different currency of an index component) and the product currency (SEK).

@Mikael Syding

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.