Next frontier for ETFs: Getting investors deeper into space

The aerospace and defense sector is rapidly advancing, drawing the attention of investors eager to explore new opportunities. According to insights shared by VettaFi's Cinthia Murphy on CNBC's "ETF Edge," a growing number of exchange-traded funds (ETFs) are now focusing more intently on the space theme. Notable examples include the Procure Space ETF (UFO) and the Global X Defense Tech ETF (SHLD). Murphy highlighted the multifaceted nature of the defense sector, which encompasses cybersecurity aspects such as satellites, communication, and navigation technologies. This diversification has made the defense industry particularly vibrant, extending beyond traditional players like Lockheed Martin to a wider array of innovative companies. As of Thursday’s market close, the Procure Space ETF has surged nearly 19% since the onset of the Iran conflict, while the Global X Defense Tech ETF has seen a decline of 8%. In contrast, the established iShares US Aerospace & Defense ETF has experienced a 10% drop during the same timeframe, with its leading holdings including GE Aerospace, RTX Corp, and Boeing. Looking ahead, Murphy anticipates sustained investor interest in aerospace and defense sectors, even after any resolution to the Iran war. "Geopolitical tensions often highlight this sector, but its potential for growth is amplified by new technologies and significant government investments expected in the coming years," she stated. Interest is further fueled by the anticipated initial public offering (IPO) of SpaceX, expected in June, which Murphy suggests will intensify focus on space ventures. "This year, we have seen a remarkable discussion around space exploration and investment, particularly with the upcoming SpaceX IPO," she noted. SS&C Technologies' Paul Baiocchi shares a positive outlook on aerospace and defense stocks, predicting a substantial increase in global defense budgets that will benefit the industry. He explained, "All these factors are converging around limited resources, leading to growth in commodities allocations and energy infrastructure." Baiocchi also emphasized the critical role of artificial intelligence in this landscape, noting that while chips may be a bottleneck for AI, the sectors of power transmission and raw material availability are equally crucial. "In defense, the accessibility of rare earth materials is an important constraint as well," he added, highlighting the interconnectedness of these technological advancements with defense capabilities.