The UFO ETF Is Crashing Back to Earth as SpaceX Stock Treads Water Below $135

There’s no denying that the space industry has plenty of long-term potential. But as I’ve seen for a decade, pulling future returns forward is a recipe for disaster. 

Look no further than the Procure Space ETF (UFO), a fund launched well before SpaceX (SPCX) stole industry headlines with its record-setting IPO. 

Marketing decks have pitched the space economy as the ultimate “final frontier” for portfolio growth — a trillion-dollar megatrend spanning direct-to-cell satellite networks, orbital manufacturing, and deep-space infrastructure.  

Yet, after a wild run that saw the ETF climb to a 52-week high near $68, UFO has come crashing back down toward the $41 range as of Monday’s close.That’s a nearly 40% drop. And it retraced what had been a more-than-50% year-to-date gain in the ETF. Investors who chased the thematic hype are watching the space trade come up completely empty. 

The bad news for investors is that, looking at the chart, it looks to me like the UFO ETF is still heading lower. That percentage price oscillator (PPO) at the bottom of the chart above indicates an attempt to bottom, which was quickly struck down. Like a meteor hit it. 

The best feature of UFO going forward is not the recent inclusion of SPCX. It is the handful of mega-cap, blue-chip aerospace giants that are littered throughout that top holdings list above. And the fairly even weighting of the ETF, in that there are many 3%-ish holdings. That said, with the top 10 stocks accounting for 48% of assets, UFO has the reward potential and risks of a concentrated ETF.

The reason for the UFO crash isn’t that satellites stopped orbiting. It is that the market priced in decades of science-fiction perfection, only to be hit with the cold, unvarnished physics of high capital expenditure, dilution risk, and late-cycle valuation discipline.

The SpaceX IPO: A Spotlight That Revealed Too Much

The single most anticipated catalyst for the entire sector was supposed to be the public debut of SpaceX. When the company went public at $135 a share, it was treated as the ultimate validation for the space economy. UFO even fast-tracked SPCX into its portfolio following a VettaFi index reconstitution, granting the ETF direct exposure to the flagship name of the industry.

On paper, having SpaceX inside UFO was a massive win for retail investors. But in reality, the IPO acted as a giant, blinding spotlight that exposed the structural flaws of the entire space ecosystem. 

What was baked in?

Answer: Virtually everything. In the months leading up to the listing, speculative capital flooded into proxy stocks inside UFO including AST SpaceMobile (ASTS), Rocket Lab (RKLB), and Planet Labs (PL). Investors bid these secondary space names up to parabolic multiples, assuming that a massive SpaceX valuation would automatically re-rate the entire sector. The market had already priced in flawless execution for the next 10 years before a single share of SPCX traded.

The moment SPCX debuted, Wall Street analysts started crunching the actual numbers. At $135, SpaceX was trading at nearly 94 times trailing revenue. When the stock failed to hold its initial spike toward $150 and began sliding right back down toward its $135 IPO floor, the aura of invincibility shattered.

Even worse, Wall Street realized that as insider lockup periods expire, shares will be flying around for sale like space junk. If the king of the sector was struggling to justify its valuation price tag, how could secondary, unprofitable space names justify theirs?

WIth UFO, you are stuck holding hyper-dilutive speculative startups on one side, and slow-growth legacy companies getting disrupted on the other. That is a terrible recipe for long-term compounded returns. That makes the GraniteShares 2X Short SpaceX Daily ETF (SNK) and the Tradr 2X Short SpaceX Daily ETF (SPCG), a pair of 2x inverse ETFs, bound to be more popular than even initially imagined. 

Rob Isbitts is a semi-retired CIO, former fiduciary investment advisor, and Barchart columnist. Check out his other work at ETFYourself.com (featuring the Fresh Charts weekly trading post), and ROAR.PiTrade.com, helping investors to better-manage their own portfolios.