SpaceX’s IPO is almost here, and investors are looking to hitch a ride to the moon.

Ahead of the highly anticipated public debut of Elon Musk’s rocket company expected June 12, funds with exposure are quickly gaining popularity. While SpaceX is offering some of its IPO shares directly through brokerages including Robinhood, Fidelity and Charles Schwab, investors can also get a piece of the moon pie through a product that launched in March: Tema ETFs’ Space Innovators ETF (NASA). As of June 1, NASA has a 6.88% weighting in SpaceX via a special purpose vehicle, and investors are biting, with the fund gathering roughly $2.6 billion in assets since inception.

“What NASA did is totally unnatural,” Bloomberg ETF analyst Eric Balchunas said about the fund transitioning from a newborn to the top of the category in just around two months. The NASA ticker helped, but since the fund is from a small indie firm — and competing with heavyweights in the space ETF category such as Cathie Wood’s ARK Invest — exposure to the soon-to-be public company is the main driver, Balchunas added. “It’s the SpaceX effect.”

Cleared for Launch

SpaceX’s stock may have permeated the zeitgeist, but will those NASA ETF investors stick around for the long haul?

“If you are a believer in the space economy and the buildout and the expectations, you’ll hang around,” said Todd Sohn, chief ETF strategist at Strategas. “The other cohort is the fast money who are taking advantage of this run-up, and I suspect that they’ll leave pretty quickly.”

Single-theme ETFs are known to be boom and bust, he adds, pointing to fervor around cybersecurity and cannabis ETFs that eventually dwindled. A theme gets hot, multiple issuers come out with the same kind of product and volatility really starts to pick up, Sohn said. “I would just be very mindful of that, and that everyone is involved in this kind of IPO. I would expect more volatility to occur, and that may shake out some tactical holders.”

NASA isn’t the only space ETF benefiting from the upcoming listing:

• ProcureAM’s Procure Space ETF (UFO), which launched in 2019, crossed the $1 billion threshold last week.
• The ARK Space & Defense Innovation ETF (ARKX) and State Street SPDR S&P Kensho Final Frontiers ETF (ROKT) gained roughly 22% and 47% this year, respectively, through Tuesday morning.

Choosing a Trajectory. The thematic ETFs will probably get you the most bang for your buck when it comes to exposure to SpaceX, Sohn said. But for many investors, it probably makes sense to stick with a broad-based index fund that will offer you some exposure, albeit to a lesser degree.

So many active ETFs. So little time.

Active ETFs have exploded in popularity over the past few years. Independent RIAs held roughly $28 billion in active ETF assets in the first quarter of 2021, which surged to nearly $400 billion by the end of last year, according to FINTRX data. Yet despite the rapid growth, advisors remain cautious about significantly increasing allocations. Active ETFs now account for roughly 80% of new launches, and industry experts say the sheer number of products entering the market can make it harder for advisors to determine where active ETFs belong in client portfolios.

“There’s so much product out there,” Brett Sheely, head of ETF specialists at AllianceBernstein, said during a panel discussion at the ETP Forum in New York on Tuesday. While active ETFs can play an important role in portfolios, he said, advisors can easily become overwhelmed by the expanding menu of options. “I do think that the onus is really on us [as asset managers] to ensure we’re providing all the education along with the tools.”

Winners, Losers

Active ETFs don’t track a benchmark, and in many cases, attempt to outperform the broad market. That promise can appeal to investors, but it can also create challenges for advisors tasked with explaining performance when results fall short. “When you get that phone call saying, ‘Why did you put me in this?’ you’ve got to answer those tough questions,” a portfolio manager said during the panel

He argued that the active ETF market will eventually separate winners from losers, pointing to SPIVA data showing that roughly nine out of 10 active funds underperform their benchmarks over long periods. “This is a big industry, a lot of smart people, a lot of people who went to good schools, and for the industry to overall perform like that is not great,” the portfolio manager said.

Not everyone on the panel viewed active ETFs through the same lens. One expert argued that investors should have the freedom to take calculated risks. “I don’t know that we should necessarily always be trying to protect retail investors from themselves,” he said, adding that active ETFs can offer a more accessible way to pursue higher-risk strategies than trading options or futures directly.

Money Where Your Fund Is. For his part, Sheely puts his own money into active ETFs. “That’s where I usually look for things that are differentiated and where I think I can get longer-term outperformance,” he told Advisor Upside in an interview. “I can’t get that through an index.”

For an industry that loves a tight spread, there’s a mismatch in the ETF world that’s getting harder to ignore: compensation.

As investment in ETFs continues to surge, there’s a significant premium for employees who directly influence flows, liquidity and execution. Average salaries and bonuses total around $573,000 for trading roles, $369,000 for capital markets, $362,000 for sales and $350,000 for portfolio management, according to the recently released Blackwater salary index. But operations roles pay around $214,000 and research and strategy about $239,000. While most of America won’t feel sorry for employees making generous six-figure salaries, the gap could pose a problem for ETF issuers.

“As product complexity rises, the cost of underinvesting in research, operations and platform infrastructure also rises,” said Erum Stefan, managing director at Blackwater ETF.

Time for a Raise

To be fair, roles that are cost centers generally are paid less than sales and trading roles, which are revenue centers, said Deborah Fuhr, founder of research firm ETFGI. “ETF trading and capital markets is becoming more important and more challenging, given the growth in the number and types of ETFs and the various exchanges and countries where they are listed,” she added. “And the pool of qualified talent is small.”

But nearly half of ETF professionals think they’re underpaid, according to the data. The solution isn’t necessarily blanket pay inflation, Blackwater’s Stefan told ETF Upside:

• “The answer is more precise compensation design,” she said. “ETF issuers need to build pay bands by function, seniority, region and business impact.”
• Trading, sales and capital markets may justify higher premiums because they directly influence liquidity, flows and execution, Stefan added. But operations, research and strategy jobs need to be repriced if the roles carry platform risk and product-quality responsibility or affect client credibility. Bonus structures should also be more clear.

Mind the Regional Gap. US workers are also making significantly more than their overseas counterparts. Their average total compensation is approximately $471,000 compared with $340,000 in EMEA and $318,000 in the Asia Pacific region. “For global ETF businesses, this creates a real talent-planning issue,” Stefan said. “A single global compensation band no longer works. If a firm tries to hire or retain US ETF talent using European or APAC benchmarks, it will struggle.”