The Best Space ETF to Buy Before a Summer Rally

With the S&P 500 up 2.5% through the first half of this month, "sell in May and go away" hasn't been great advice this year. That's subject to change, but a summertime swoon might not materialize this year for a variety of reasons. One is that investors will finally be able to get their hands on SpaceX stock, because Elon Musk's company is getting closer to an initial public offering (IPO).

SpaceX's IPO prospectus could be released as soon as this week, according to published reports, paving the way for an early June roadshow. That could set the stage for the stock to come to market as soon as next month. With speculation that SpaceX will be the largest IPO in history and investors hoping the Musk touch is again golden, it's possible that spirits will be lifted, and risk assets could rally during the often-quiet summer months.

One thing is certain: Space stocks and the related exchange-traded funds (ETFs) are sure to be in focus in the weeks and months ahead, making the Tema Space Innovators ETF (NYSEMKT: NASA) worth examining.

Space stocks are hot, and this ETF could sizzle this summer. Image source: Getty Images.

Getting to know NASA

If you're not yet familiar with the Tema Space Innovators ETF, don't fret, because this is a new ETF. It debuted on March 30 and has rapidly accumulated $615.8 million in assets under management. That's not too shabby for an ETF that's not even two months old, and all the more impressive when considering that Tema isn't one of the legacy ETF giants. More impressive: It has increased 45% since its debut (as of May 19).

Some, perhaps a lot, of the early enthusiasm for this ETF is attributable to SpaceX. All the chatter about getting involved with SpaceX before the IPO is putting eyeballs on this ETF, and the fund is answering the bell because it has the goods.

Through a special-purpose vehicle (SPV), SpaceX is the Tema fund's second-largest holding, accounting for 8% of its weight. It's not unusual for ETFs to gain exposure to private companies using SPVs, and for investors looking to precisely quantify this ETF's SpaceX exposure, that part is easy. As of May 15, the fund owned nearly 9 million shares of that stock, valued at $58.9 million, according to issuer data.

As for the riddle about what this ETF will do with its SpaceX shares after the IPO, that's a valid point of inquiry because this is an actively managed fund. Chances are that SpaceX will be part of the Tema ETF's roster for some time, because, like other early investors, the issuer is subject to a lockup period, barring it from selling. Typically, those periods last six months, and when this one expires, the fund's SpaceX portion will convert to freely trading shares. Because the fund is actively managed, it comes with annual expense ratio of 0.87%, or $87 on a $10,000 investment.

More than just SpaceX

The Tema ETF has a couple of advantages that jump right off the page: SpaceX exposure and a memorable ticker. Don't underestimate the power of the latter as a marketing tool. But there's more to this ETF's story.

The universe is big, but the same isn't true of space ETFs, which means this new fund has the potential to be a disruptor. At a minimum, it's already setting itself apart from entrenched incumbents. For example, some legacy funds in the category lack SpaceX exposure but are heavily allocated to old guard satellite companies and traditional aerospace stocks.

In other words, this rookie ETF passes the space purity test. That's meaningful at a time when the space economy is forecast to grow exponentially in the years to come. The space economy was valued at $630 billion in 2023, but by some estimates, it could nearly triple by 2035. To reap the rewards of that growth, investors are right to demand direct, rather than indirect, exposure to space. This new ETF delivers that.

Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.