Space ETFs are Skyrocketing Ahead of SpaceX's IPO, but Are They Really Smart Buys Right Now?

SpaceX's market debut on June 12 will likely be the biggest IPO in history. That anticipation is driving a lot of space-themed ETFs higher, but should you hop aboard that bandwagon?

Which space ETFs are soaring higher?

Tema's Space Innovators ETF (NYSEMKT: NASA), ERShares Private-Public Crossover ETF (NASDAQ: XOVR), and the Baron First Principles ETF (NYSE: RONB) are three of those hot ETFs. All three ETFs provide investors with exposure to SpaceX through special-purpose vehicles (SPVs) that purchased the company's private shares in the secondary market.

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NASA, launched this March, invests in dozens of space-oriented companies across the orbital rocket, satellite communications, Earth observation, and space infrastructure markets. It also became the first ETF to gain direct exposure to SpaceX via an SPV. It only allocates 6.4% of its portfolio to SpaceX, while its other top holdings include Rocket Lab (NASDAQ: RKLB), EchoStar (NASDAQ: SATS), and AST SpaceMobile (NASDAQ: ASTS). That makes it an attractive all-in-one play on the space market, but it charges a high expense ratio of 0.75%.

XOVR, which was relaunched in 2024 to blend investments in high-growth public and private companies, invests in Magnificent Seven stocks as well as SpaceX and Andruil via SPVs. Its investment in SpaceX accounts for 13.2% of its portfolio. It also charges a 0.75% expense ratio. RONB, which was launched last December, holds a more diverse basket of growth stocks and allocates 11.8% of its portfolio to SpaceX. It charges an even higher expense ratio of 1.00%.

These ETFs might seem like a clever way to get some exposure to SpaceX's IPO before its public debut, but the value of those private shares could become detached from its actual valuation after it starts trading. These funds also can't sell any of their shares in SpaceX -- which likely go through some volatile swings -- for 180 days until the lockup period ends.

So if you expect SpaceX to be overvalued at its market debut, these funds could get stuck holding the bag as its early traders flip the IPO for some quick profits. That decline, along with a potential market crash or an exodus from space stocks, would exacerbate that pressure.

Is it the right time to buy these space ETFs?

I wouldn't invest in any of these pricey ETFs just to get a tiny piece of SpaceX before it goes public. Instead, I'd review their holdings and pick a few of their better stocks -- like Rocket Lab or AST -- and wait for SpaceX's stock to simply pull back after its market debut.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AST SpaceMobile and Rocket Lab. The Motley Fool has a disclosure policy.