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5 Ways Hedge Funds Are Playing the Space Trend

Insider Monkey Team

Space is the final frontier. It is also a land of opportunity as there are a variety of uses for it from internet satellites to tourism to asteroid mining. As rockets get cheaper and space technology improves, American companies such as The Boeing Company (NYSE:BA)Lockheed Martin Corporation (NYSE:LMT)Amazon.com, Inc. (NASDAQ:AMZN)Facebook Inc (NASDAQ:FB), and Alphabet Inc (NASDAQ:GOOG) are bound to take advantage of the vast potential that is space. Space is also important for the military. From spy satellites to top secret research, space is important for national security. Here are five ways elite investors are playing the space trend and how the average investor can tag along.

Amazon.com (NASDAQ:AMZN), The Washington Post (NYSE:WPO), Berkshire Hathaway Inc. (NYSE:BRK.A), Apple Inc. (NASDAQ:AAPL)

Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

The Boeing Company (NYSE:BA)

- Number of Elite Fund Holders (as of December 31): 67 - Total Value of Elite Fund Holdings (as of December 31): $4.05 billion

Boeing is one of the biggest space players around. Boeing is in space due to its part in help to produce the Minuteman III, an intercontinental ballistic missile system where American missiles with nuclear weapons go to space before hitting the enemy. Boeing is also responsible for making a variety of satellites and plays a part with the international space station.

Lockheed Martin Corporation (NYSE:LMT)

- Number of Elite Fund Holders (as of December 31): 42 - Total Value of Elite Fund Holdings (as of December 31): $1.27 billion

Lockheed produces a variety of spacecraft and satellites that perform a variety of roles from advancing discovery to connecting people to delivering GPS directions. The company plays a part in making the most powerful GPS satellites built, one which will have three times the accuracy and eight times the anti-jamming capabilities as before.

Amazon, Facebook, and Alphabet

Amazon, Facebook, and Alphabet are each trying to increase their total market size and arguably nothing is better than bringing internet to the billions of people who don’t currently have it. Not only do those companies help make the lives of people better, but also they will benefit in the future from selling more ads, services, and other lucrative products. Each company is considering ways to connect billions of people online. Amazon has an idea of launching 3236 satellites to provide internet to any place on earth. Amazon would benefit not only by selling more products but through Amazon Web Services which provides cloud services to many internet companies that would benefit. As for the costs, some believe it would cost $3-$4 billion or perhaps $5 billion+. Given Amazon's large market cap, Amazon could afford it. Facebook would benefit from more people using their social networks and clicking on more ads while Alphabet would benefit with more people using their search engine and YouTube. Facebook has confirmed that the company is working on a satellite termed Athena, which intends to  "efficiently provide broadband access to unserved and underserved areas throughout the world". Alphabet has considered potentially making a series of hot air balloons that are on the edge of space that provide internet. 

Of the around 700-740 elite funds we track, 168 funds owned $19.02 billion of Amazon.com, Inc. (NASDAQ:AMZN) on December 31, versus 150 funds and $21.77 billion respectively on September 30. Meanwhile, 161 top funds owned shares of Facebook Inc (NASDAQ:FB) and 141 elite funds were long Alphabet Inc (NASDAQ:GOOG)  at the end of December.

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