Let's be honest about something most financial media still won't say plainly: the two most prominent space ETFs sold to retail investors over the past five years have been, on balance, disappointments. ARKX and UFO promised to let ordinary investors ride the new space economy — a sector with genuine, world-altering tailwinds. Instead, both funds have underperformed the S&P 500 by substantial margins since their respective launches. That isn't a temporary rough patch. It reflects structural problems that no amount of rocket launches or Starship test flights has yet solved.
This article does not argue that space is a bad investment. The opposite is true: the space economy is expanding faster than almost any sector on Earth, and the next five years could produce extraordinary returns for investors who position themselves correctly. But positioning yourself correctly means understanding why the easy play — buying a space ETF and waiting — has not worked, and why it may continue to underperform even as the underlying industry accelerates.
Here is the honest analysis, and a set of alternatives worth considering.
ARKX and UFO: The Numbers Don't Lie
To understand the disappointment, you need the numbers.
ARKX — the ARK Space Exploration and Innovation ETF — launched on March 30, 2021. The fund was created at the peak of Cathie Wood's influence, when ARK Invest's flagship ARKK fund was still riding high from its extraordinary 2020 run. ARKX raised significant assets in its first weeks on the back of ARK's brand. The timing could not have been worse. Between launch in March 2021 and the end of 2023, ARKX lost approximately 60% of its value — a period during which the S&P 500 itself declined modestly and then recovered. The cumulative underperformance gap between ARKX and the broader market over that stretch was approximately 50 to 60 percentage points by most estimates.
To be fair to the fund, 2024 and 2025 showed meaningful recovery. ARKX returned approximately 27% in 2024 and an estimated 48% in 2025, outperforming its category average both years. But investors who bought at or near the launch date and held through 2025 are still deeply underwater relative to what a simple S&P 500 index fund would have delivered over the same period. The recovery has been real; the cumulative damage has not been erased.
UFO — the Procure Space ETF — launched in April 2019, making it the older of the two major space-focused funds. UFO tracks the S-Network Space Index and holds at least 80% of its assets in companies that derive at least 50% of their revenues from space-related businesses. The purity test sounds rigorous. The results have not been. UFO returned -2.15% in 2020, 7.15% in 2021, a brutal -25.88% in 2022, and -2.36% in 2023 before recovering to approximately 27% in 2024. Over the five years from launch through early 2026, UFO has delivered a cumulative return that trails the S&P 500 by approximately 40 to 50 percentage points, depending on the precise measurement window.
The pattern across both funds is similar: heavy losses in the 2022 rate-hike cycle, sluggish recovery, and a persistent inability to keep up with the broader market even in strong years. What explains it?
Why Space ETFs Have Struggled
The problems with ARKX and UFO are structural, not cyclical. Understanding them matters because they will not disappear just because the space economy continues to grow.
The composition problem is the core issue. When ARKX launched in 2021, critics immediately noted that the fund held Netflix, Amazon, Deere & Company, and other names with tenuous connections to actual space activity. The justification — that these companies "benefit from" or "enable" space technologies — stretched the definition of a space investment to the point of absurdity. Netflix was reportedly included because it distributes satellite content. Deere was included because its precision agriculture systems use GPS satellites. This is not space investing. It is thematic mandate-stretching driven by a shortage of investable pure-play space companies.
Jim Cramer captured the market's reaction on the day ARKX launched, stating that there was no reason for the fund to exist — a blunt assessment that, in hindsight, was more accurate than dismissive. The core of the criticism: there simply are not enough liquid, publicly traded, pure-play space companies to build a well-diversified space ETF. At launch, ARKX's top holdings were a mix of defense primes, satellite operators, and tech companies with at best indirect space exposure.
UFO's purity test creates its own problem: overconcentration in businesses with structural headwinds. The 50%-of-revenues-from-space requirement sounds rigorous, but in practice it routes capital heavily into satellite communications companies and legacy defense contractors. Several major UFO holdings have historically been companies operating legacy satellite fleets — geostationary birds in expensive orbital slots being slowly undercut by LEO constellations from SpaceX and Amazon. Owning the incumbents in a sector being disrupted by better-capitalized competitors is not a recipe for strong returns.
The sector was premature. In 2019 and 2021, the new space economy was real but most of its most compelling companies were still private. SpaceX — the dominant force in launch, the largest LEO constellation operator, and the company most likely to define the next decade of space infrastructure — has been private for its entire existence and remains so as of April 2026, with an IPO only now in process. Rocket Lab (RKLB) was barely public. Planet Labs had not yet listed. Intuitive Machines was years from its SPAC merger. The publicly available slice of the space economy in 2019–2021 was an unrepresentative sample — heavy on legacy incumbents, light on the high-growth names that were actually driving the sector's expansion.
High expense ratios compound the drag. Both ARKX and UFO carry expense ratios of 0.75% — roughly double what a comparable defense-oriented ETF charges. In a period of underperformance, that fee compounds the damage. Over five years, a 0.75% annual fee on a declining NAV represents a meaningful additional headwind that investors in a plain S&P 500 fund with a 0.03% expense ratio never faced.
Diluted holdings reduce the signal. A space ETF that holds 50+ securities, many of which are diversified defense or technology companies with only incidental space revenues, does not give investors concentrated exposure to the space theme. It gives them a heavily diluted blend of general industrials, defense, and technology stocks — most of which an investor could access more cheaply through broader funds.
The Case for ETFs Despite the Performance
Before abandoning space ETFs entirely, it is worth acknowledging what they do provide.
Diversification within a volatile sector. Individual space stocks are extraordinarily volatile. RKLB fell from approximately $18 to $3.47 between late 2022 and April 2024 before surging to nearly $100 by January 2026. LUNR has swung more than 40% in a single session on contract news. For investors who cannot stomach that volatility but want some space exposure, an ETF provides a smoother ride — even if the destination is less impressive.
No single-stock catastrophe risk. If a launch vehicle explodes, a satellite constellation faces a regulatory challenge, or a key government contract falls through, a single space company can lose 30–50% of its value overnight. An ETF holding 30–50 names buffers that risk. For investors who are not tracking the sector closely, that buffering has genuine value.
Passive exposure for long-term believers. If your thesis is simply that the space economy will be substantially larger in ten years than it is today, and you do not want to spend time selecting individual stocks or tracking quarterly earnings, a space ETF provides exposure to that theme. The performance may not be spectacular, but it will not be zero, and it participates in the sector's growth even imperfectly.
For most serious investors with meaningful capital to deploy in space, however, these benefits are outweighed by the structural problems described above. There are better ways to get exposure.
Better Alternatives: Individual Stocks and Defense ETFs
Individual pure-play space stocks offer what ETFs cannot: concentrated, direct exposure to the companies actually driving the sector's growth.
Rocket Lab (RKLB) is the clearest example. The company generated $601.8 million in revenue in 2025, up approximately 38% year-over-year, with a backlog near $1.85 billion. Government contracts totaling more than $800 million from the U.S. Space Force for satellite manufacturing have transformed it from a small-launch startup into a full-spectrum space company. The stock tripled in 2025 and reached an all-time high near $99.58 in January 2026. Yes, it trades at a price-to-sales ratio that would give a value investor a migraine — approximately 66x trailing revenues as of early 2026. But that premium reflects a real and defensible position as the only publicly traded Western launch provider with a high-cadence operational rocket, a second larger launch vehicle (Neutron) in development, and a growing satellite manufacturing business. RKLB is the kind of holding that a space ETF should be anchored to but typically holds at insufficient weight to move the needle.
Intuitive Machines (LUNR) is the leading commercial lunar infrastructure company, having successfully landed on the Moon twice and secured a five-year, $4.82 billion maximum-value contract with NASA for lunar navigation and communications services. Revenue was approximately $210 million in 2025, but the backlog tells the more important story: approximately $943 million as of year-end 2025, with the company guiding to $900 million–$1 billion in 2026 revenue driven by its Lanteris Space Systems acquisition. LUNR has surged approximately 270% over the past year, driven by the Artemis II launch in April 2026 and a series of NASA contract awards. It remains a high-risk, high-reward holding appropriate for investors with a specific conviction about the lunar economy timeline.
Defense-focused ETFs represent a more conservative alternative that has consistently outperformed space-specific funds.
ITA — the iShares U.S. Aerospace and Defense ETF — is the largest defense-focused ETF with approximately $13.5 billion in net assets. Its top holdings include GE Aerospace at roughly 19%, RTX at roughly 16%, and Boeing at roughly 8%. Expense ratio: 0.38%. ITA provides heavy exposure to companies with substantial space-related revenues — satellite communications, defense satellites, launch vehicle components — without the marketing overhead of calling itself a "space" fund. The fund's weighting toward large, proven primes provides stability that pure-play space ETFs lack.
XAR — the SPDR S&P Aerospace and Defense ETF — takes an equal-weight approach across approximately 42 holdings, meaning smaller names receive proportional representation that cap-weighted funds deny them. XAR returned approximately 69% over the past year, the strongest of the major aerospace-defense ETFs. Its 0.35% expense ratio is less than half of ARKX or UFO. Equal weighting gives XAR more sensitivity to mid-cap defense and space names — making it a middle ground between the safety of ITA and the volatility of individual pure-plays.
What a Well-Constructed Space ETF Would Look Like
The problem with ARKX and UFO is not the concept of a space ETF. It is the execution. A well-constructed space fund in 2026 would look quite different from what currently trades under space-themed tickers.
Meaningful weight in genuine pure-plays. RKLB and LUNR should be top-five holdings, not mid-pack positions diluted by dozens of loosely related companies. If SpaceX goes public at its anticipated $1.5–1.75 trillion valuation, it should immediately become the anchor position.
Strict revenue-purity floors with forward-looking criteria. Companies like Northrop Grumman (NOC) and Lockheed Martin (LMT) derive substantial revenues from space programs — NOC's Space segment alone generates billions annually in satellite and launch vehicle work — and belong in a thoughtfully constructed space fund. But they should be included because of their actual space revenues, not because they make components that eventually end up aboard a spacecraft.
Satellite imagery and geospatial intelligence exposure. Companies in the earth observation and geospatial analytics space represent some of the highest-growth segments in the broader sector. The acquisition of Maxar Technologies by Advent International in 2023 took one of the most prominent names private, but Planet Labs and similar companies represent the remaining public-market exposure to this fast-growing segment.
Tighter portfolio construction — 20 to 30 names maximum. Fifty-name portfolios with equal-weighted or near-equal-weighted exposure to companies ranging from core launch providers to industrial conglomerates with 2% space revenues do not provide coherent thematic exposure. A genuine space fund should be concentrated enough that a successful Starship commercial deployment or a major satellite contract actually moves the fund.
Lower fees. There is no justification for a 0.75% expense ratio on a passively managed space index fund in a market where total-market index funds trade at 0.03%. An ideal space ETF would price below 0.40% — competitive with the defense-focused alternatives that have consistently beaten it.
Timing the Next Space Investment Cycle
For all the problems with current space ETFs, the timing argument for space exposure has rarely been stronger than it is in April 2026.
The SpaceX IPO is the single most consequential event the space sector has ever faced as a public investment opportunity. SpaceX filed confidentially for an IPO in April 2026, targeting a valuation of approximately $1.5 to $1.75 trillion — which would make it the largest IPO in U.S. history, exceeding Saudi Aramco's 2019 record. Starlink alone crossed 10 million subscribers and generated approximately $10 billion in revenue in 2025. When SpaceX goes public, it will reprice the entire space ecosystem. Companies in the SpaceX supply chain, complementary infrastructure providers, and competitors will all be revalued. This is the event that space investors have been waiting for since the sector's commercial renaissance began.
Starship commercialization is the infrastructure unlock. Version 3 of Starship, with next-generation Raptor engines, is targeting orbital demonstration in mid-2026. When Starship reaches operational commercial cadence — and SpaceX's track record suggests it will, eventually — it will reduce the cost of putting mass into orbit by an order of magnitude compared to today's Falcon 9. That creates cascading opportunities: cheaper satellite deployment enables more LEO constellations, which enables more data services, which creates demand for ground infrastructure, analytics, and cybersecurity. The companies positioned at each layer of that stack are the ones worth owning now, before the cost curve inflects.
The Artemis II success changes the lunar economy calculus. The April 2026 Artemis II crewed circumlunar mission — the first time humans have left Earth orbit since 1972 — demonstrated that NASA's lunar program is real and on schedule. That has directly benefited companies like Intuitive Machines with immediate contract awards, and signals a sustained government commitment to lunar infrastructure spending that will create investable opportunities for years.
NATO defense spending at record highs creates a tailwind for dual-use space companies. Defense budgets across NATO member states hit record levels in 2026, driven by European rearmament and U.S. Space Force expansion. Companies like NOC, LMT, L3Harris, and Kratos Defense are all beneficiaries, and all have substantial space programs. The defense ETF tailwind and the space economy tailwind are, for now, pointing in the same direction.
For investors trying to time entry, the period between now and the SpaceX IPO represents a window where quality space-adjacent names have not yet been repriced by the flood of retail attention a SpaceX public listing will bring. That window will not last indefinitely.
Conclusion: Smarter Ways to Get Space Exposure
The failure of ARKX and UFO to generate competitive returns is not a verdict on space as an investment theme. It is a verdict on poorly constructed financial products launched at an inopportune moment into a sector that, at the time, lacked sufficient public-market pure plays to justify their fee structures and marketing promises.
The space economy of 2026 is materially different from 2021. The sector now has real public companies with real revenues — RKLB at $600 million and accelerating, LUNR with a $3+ billion backlog, a constellation of defense primes with rapidly expanding space segments. The SpaceX IPO, if it materializes in 2026, will fundamentally change the investable landscape.
Investors who want space exposure in this environment have better options than buying a space ETF and hoping for the best. A direct position in RKLB captures the launch infrastructure thesis with precision. A direct position in LUNR captures the lunar economy thesis. A position in XAR or ITA captures the defense-aerospace complex — including its space programs — at half the expense ratio of either space ETF, with a five-year track record that has consistently beaten both.
If you insist on an ETF, ARKX's more recent portfolio, which now anchors on RKLB and L3Harris rather than Netflix and Deere, is a more coherent product than it was at launch. But even the improved version comes with a 0.75% annual fee and a legacy of underperformance that its NAV has not yet erased.
The space economy is coming. The question is whether you are invested in it intelligently or just in funds named after it.
