Seoul National University Physics PhD ETF Manager Picks Top Space-Related Stocks

"With the establishment of reusable launch vehicle technology, the space industry is now positioned for explosive growth."

Hyuntae Kim, Head of Global Quantitative Operations at Korea Investment Management, explained the reason for investing in the space industry during a recent interview with The Asia Business Daily. Kim is the lead manager of the 'ACE US Space Tech Active' fund, which was listed on April 14. A PhD in Physics from Seoul National University, he also has three years of experience managing the 'Korea Investment Global Space Technology & Defense Fund'.

Hyuntae Kim, Head of Global Quantitative Operations at Korea Investment Management

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Kim noted that, just as the vast accumulation of data in the artificial intelligence (AI) industry marked a turning point for its growth, the space industry is now facing a similar inflection point. He said, "As the number of smartphones reached into the billions, enough data was accumulated through social media and other means to train AI models, which evolved into the AI services we use today. In the case of the space industry, after SpaceX succeeded in launching and recovering a reusable launch vehicle in 2017, the number of satellites being launched using this technology has been increasing rapidly."

'ACE US Space Tech Active' invests in 'New Space' companies that are growing based on low-orbit satellites. Traditional space companies, such as Lockheed Martin and Boeing, which have participated in government-led projects, are excluded. Kim emphasized, "Unlike traditional aerospace conglomerates that focus on manufacturing and supplying, New Space companies like SpaceX have a fundamentally different business structure. Rather than exploring Mars or the Moon, the focus is on developing Earth's orbit to obtain and utilize data. To benefit from the current growth in the industry, it is essential to invest in New Space companies."

Contrary to the vague image that the word 'space' may invoke, Kim explained that the performance growth of New Space companies is actually visible. For example, Rocket Lab, a space launch services company, saw its annual revenue grow by 37% last year compared to the previous year. Satellite imagery company Planet Labs experienced a 79% increase in its order backlog over a year, driven by demand for AI analysis. Kim remarked, "This high growth potential has already been reflected in stock prices, which means volatility can be high. However, concerns about the business profitability of these companies are often exaggerated simply because of the 'space' label, and such worries are unnecessary."

In particular, 'ACE US Space Tech Active' is the only ETF investing in the US space industry that utilizes an active strategy. Kim explained that his three years of experience managing space-related funds, combined with the growth characteristics of the industry, could create synergies with the active strategy. He stated, "Most innovative and growth industries experience changes that have not been observed before, with entirely unexpected technologies emerging and leadership shifting. This is where passive strategies based on market cap weighting or keyword-based index methodologies clearly have limitations."

Active management also has advantages in responding to a potential SpaceX IPO. Before the IPO, the fund maximized its allocation to 'EchoStar', which holds a stake in SpaceX, more than any other ETF on the market. Kim added, "While passive ETFs can also increase their allocation to EchoStar, they may have to maintain those high allocations for months or even years due to index methodology. In contrast, with an active ETF, we can increase the allocation to EchoStar until SpaceX goes public and then switch after the IPO."

He also believes that the fund can respond nimbly to concerns about supply-demand imbalances after a SpaceX IPO. If SpaceX is quickly added to the Nasdaq 100 index, there are concerns that passive funds tracking the index will rush in, causing the stock price to overheat. Kim said, "With passive funds, once the inclusion date is set, they have to buy regardless of whether the price is $500 or $20,000. We also plan to quickly allocate the maximum weight, but if the stock price surges excessively, we can respond flexibly." He continued, "If the price of SpaceX rises, we have designed the portfolio to sell EchoStar and switch to SpaceX, thereby mitigating risks associated with buying at the peak."

Given that the US stock market has remained flat this year, Kim forecast that there is ample growth potential ahead. He said, "Despite steady earnings improvements by major US companies over the past six months, the Nasdaq has been moving sideways, making current valuations highly attractive. It is important to refocus on the US stock market moving forward, and even more attention should be paid to the space industry, which has a powerful capital inflow trigger in the form of a potential SpaceX IPO."

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