ARK’s Sam Korus on firm’s newly-launched Space Exploration & Innovation ETF

Ark analyst Sam Korus, joins Yahoo Finance to discuss Cathie Wood’s Space ETF debut and investing in space exploration and innovation.

Video transcript

JULIE HYMAN: A big debut yesterday for a new ETF from ARK Invest. So you know there's going to be high demand even though some of the ETFs have been waning in that portfolio as of late. This was the first new ETF from the company in two years. And it was the eighth biggest debut in ETF history from a volume perspective, $294 million in volume on trade-- in trading yesterday.

Sam Korus is joining us now. And he is the lead analyst on this new space ETF. Sam, thanks so much for being here. ARK is known for these sort of long-term, in some cases, moon shot-- and maybe this one literally-- plays. Space is tricky, right? Because there are the biggest players, the biggest pure play players are private. So how did you go about approaching how to construct this thing?

SAM KORUS: Yes, I think that really ties into the strength of ARK's research ecosystem. And as you said, there are so many different components to space company and what makes space successful. And so, you know, you can see that 3D printing is a large part of this fun. And really, aerospace is this killer application for 3D printing. And, you know, when we are talking about it, right, long term is exactly the way to think about it.

And there's totally new industries that are being created. So you have satellite internet connectivity that could be $100 billion in annual revenue in the next 5 to 10 years. You have hypersonic point-to-point travel. Going from New York to Japan in two to three hours, that could be $270 billion annually. All of these opportunities are just starting to take shape. And so we're looking for the companies that are going to benefit from this, the ones that are enabling it, and then, you know, the ones actually doing it themselves. So there's definitely a lot of components and some huge opportunities out there.

MYLES UDLAND: And Sam, I look at some of the big holdings. Boeing's in here, Lockheed, L3Harris. Certainly there's a government contract component of this. I mean, how big do you think the US government, and really, international governments, impulse towards investing in space exploration, how large do you guys think that impulse is going to be over the coming decade? Obviously, it was on a downward trajectory, but it feels like that tide is starting to turn.

SAM KORUS: I'd agree. And I think, kind of, it's been an interesting dynamic if we look over the past few decades. And really, space was monopolistic, government-driven. And now it's become much more commercial and government private partnerships here. And so, we're seeing tremendous demand from governments. I think there is an emerging new space race. And every government out there wants to have its own satellite constellation and, you know, have eyes in real-time communication, no matter where they are in the world. But then we also have these companies that are also going after it and really speeding innovation along.

BRIAN SOZZI: Sam, what's your-- what's the expected rate of return on this ETF for you?

SAM KORUS: Sure, so right now, if we look at the portfolio as a whole, I think we're expecting a north of 15% compound annual growth rate. So that would be similar to all of our other ETFs, where, over the next five years, we'd expect a doubling. And we think, you know, again, as I mentioned earlier, we have these huge hundreds of billion dollar opportunities that are just taking place today and just starting.

So, you know, we mentioned that satellite connectivity, hypersonic point-to-point, which might be a bit further out. But something that we're seeing happening as we speak is this air taxi environment. And we have batteries that have come down in cost, autonomous technology that's come into place. That's going to open up this market that never existed before. And I know I'm personally excited to be able to go from downtown New York to JFK for $75 in an air taxi, as opposed to paying the same amount in an Uber or something and sitting in traffic for two hours.

JULIE HYMAN: And Sam, what about sort of the discoveries that are made through space travel and products or services or innovations that come from that? How does that fit into the strategy, or is that sort of in one of the other ETFs in the portfolio?

SAM KORUS: Yes, so in this, we like to think of those as what we call aerospace beneficiaries. And so that could be a company like Netflix that's benefiting from increased access to internet and that increases their total addressable market. I think another one that people have been calling out, but John Deere, they utilize satellites for precision agriculture. They utilize drones for information gathering.

Same with Komatsu, which is a mining company that's really reducing costs and has the potential to boost margins by using drones to pre-survey scenes to do measurements on scenes. So there are a number of companies out there that people aren't necessarily doing the work right now, but we're researching and we're seeing that we can get both top line growth and margin expansion from some of these technologies.

JULIE HYMAN: And finally, if I could say, I want to ask you a little bit more broadly about ARK as well. Because, wow, you guys have had an interesting year, right? Of course 2020 was a huge year for ARK. This year, we've talked-- we were talking earlier on the show about the sort of rotation that we have seen out a lot of the popular trades, including those that were heavily relied on for ARK ETFs. You've still seen inflows this year. Now, I know you're-- I don't think you're physically at an office, but I'm just wondering, like, what's the vibe like at ARK these days as you have seen all this sort of turmoil around you and involving your own ETFs?

SAM KORUS: Yeah, we're long-term investors. So the short-term volatility makes things really exciting. And it's actually when I think ARK shines the most. Given that we do have a longer time horizon, we use this opportunity to consolidate into our highest conviction names. And we think that really gives us the edge over that long-term. So the short-term volatility is exciting. And we think it gives us even better opportunities to take positions for the long-term.

JULIE HYMAN: All right, keeping your eye on the prize. Sam Korus, thanks so much for being here. You're an analyst at ARK Invest. Hope to talk to you again soon as we watch this space ETF maybe take off. We'll see. Appreciate the time.