While it’s widely hoped that this year will turn out better than 2020, it’s hard to imagine anyone striking it so lucky, so quickly as Andrew Chanin.
Chanin is the CEO of ProcureAM, which runs an exchange-traded fund focused on space exploration. Since its inception, the fund, with the out-of-this-world ticker UFO
has held a niche role as the only ETF solely focused on space exploration.
But on Jan. 13, UFO got competition: ETF behemoth ARK Investment Management filed an application with the Securities and Exchange Commission for its own space exploration ETF. And thanks to the vagaries of the ETF universe, that turned out to be one of the best things that could have happened to UFO, launching it into the final frontier, as it were.
For some context, ARK manages tens of billions of dollars of assets in industries that require strong stomachs, like genomics, robotics and fintech. The company’s funds are mostly actively managed, by a media-savvy founder who’s not afraid to be bold when others are fearful, or to make brash calls that may move markets. Its flagship fund
returned a whopping 153% in 2020.
That all might have seemed like a death knell for Chanin’s little fund. With roughly $43 million in assets, it hadn’t quite cracked the $50 million threshold that’s widely considered the break-even point at which an ETF is self-sustaining. And while there’s always something to be said for a first-mover advantage, noted Todd Rosenbluth, head of ETF research for CFRA, compared to the ARK juggernaut, nearly any brand is an underdog.
But there was something different written in the stars for
As soon as ARK’s SEC filing became publicly known, investors started to pile into UFO, hoping to get into the same stocks that would likely be in the still-to-be-launched portfolio. UFO now boasts $68.3 million in assets, according to its web site, a bump of nearly 60%.
“The irony is the fund will now
be on more peoples’ radar for the fact that it’s going to get competition,”
Rosenbluth said in an interview. “That’s just not how things usually work.”
“We’re just grateful to see more investors looking at UFO,” Chanin told MarketWatch. “We’re ecstatic to be growing.”
UFO was never in any danger
of going out of business, he said, but hurdling the $50 million milestone has
brought some perks, including being approved for inclusion on the Raymond James
trading platform in mid-January, among others.
To some extent, the recent turn
of events confirms the thinking of investors who pushed for a less-transparent
form of ETFs to be made available for active managers who wanted to shield
their positions, Rosenbluth said.
“People are buying UFO as a way to front-run what they think could be inside one of the hottest managers’ portfolio. It’s like in Vegas: everyone wants to get on the winning table.”
To be sure, it’s a bit more likely that a front-running strategy like this one will pay off in a narrower industry. “As far as pure-play space companies that are large and liquid and trade on developed exchanges, there’s a limited universe,” Chanin said. UFO’s criteria require 80% of holdings derive a minimum of 50% of their revenues from space, he said, adding that “active managers have a lot more leeway in what they select.”
When asked if he was nervous
about competing with ARK, Chanin said only, “Time will tell.”
Left unsaid is what is likely an uncomfortable sense of deja vu. Several years ago, Chanin launched a cybersecurity-focused ETF called HACK, which is still at the center of multiple lawsuits alleging the fund was stolen by one of the advisers that helped run it.
Chanin is unable to comment specifically on the pending lawsuits. But he did say, “Whenever I bring out a successful fund, I inevitably see competition. I’ve led the industry in bringing out first-to-market products. It’s a shame that whenever I come out with an idea the investment community doesn’t just throw money at me like they might with some other companies, but that just shows me I need to work harder. One day maybe people will consider me a financial tastemaker.”
Ultimately, more attention on the ETFs is a boon for the space industry, he believes.
“The space industry is critical, both from a national security standpoint and for our own human competence,” Chanin said. “but it historically has not received the investment dollars for what it needs to take the next leap. There are so many early stage technologies and companies out there and what we’re doing and what ARK’s doing is fantastic and essential. Hopefully that will encourage the next wave of entrepreneurs and bright minds to come to the field.”