As billionaires Jeff Bezos and Richard Branson blasted off for joy flights this year, investors' thoughts have turned to space.
For many decades, the prohibitive cost of sending humans outside earth meant space travel was monopolised by the public sector.
But this is no longer the case, according to Nucleus Wealth head of investments Damien Klassen.
"For me, what is incredible is the pace of cost reductions being seen in the sector," he said on the Nucleus blog.
"Elon Musk's SpaceX has brought the cost of launching equipment into space down by a factor of 10. And there is a realistic roadmap to bringing it down by another factor of 10."
He pointed out that only 20 years ago solar power was "a novelty", but after dramatic cost reductions, it is now transforming the energy industry.
"The question is, what sectors could be affected by a similar change? What emerging trends should we be watching today?"
Klassen said the entry of the private sector makes the new space race very exciting.
"Plus it is an interesting hedge on the continued souring of US-China relations. If the space sector isn't at least on your radar, it should be."
How to get exposure to the space sector
There are many ways to invest in the space industry in overseas markets.
Mammoth US defence contractors, like Boeing Co (NYSE: BA) and Lockheed Martin Corporation (NYSE: LMT), are one path.
"But space investment is only a part of a very large company. And they are often not working on some of the cutting edge technology."
Klassen mentioned that there are a couple of space-themed exchange-traded funds in the US too: Procure Space ETF (NASDAQ: UFO) and ARK Space Exploration & Innovation ETF (BATS: ARKX).
But as for ASX shares, he named 4 companies.
"Electro Optic Systems Hldg Ltd (ASX: EOS) is the biggest of the crew," said Klassen.
"Brainchip Holdings Ltd (ASX: BRN), Xtek Ltd (ASX: XTE), and Kleos Space SA (ASX: KSS) round it out."
The Australian companies are small caps, so there is considerable risk compared to the much larger overseas investments.
"If you are looking for Australian stocks, then be prepared for some red ink on your P&L," Klassen said.
"You need to be comfortable with the product and see a path to profitability."
He warned investors to avoid buying "a dream".
"If there is another space race, you can expect most defence contractors to benefit. That will not be the case for smaller stocks."
Electro Optic Systems shares have lost 37% for the year, while Xtek has shaved 26% off its value. Meanwhile, Brainchip has gained 10.5% so far in 2021 and Kleos Space has returned a handsome 56.5%.
