JEFF PRESTRIDGE: You’d have TRIPLED your money if you’d bought this sky-rocketing fund I tipped three years ago… This is where to invest next for stellar returns

Move over artificial intelligence, it’s time for investors to consider exposure to space technology in order to fuel their investment portfolios, Isas and pensions.

It’s an asset class attracting considerable money from sovereign wealth funds and institutional investors such as pension funds.

Let me set the scene before I explain why space technology represents a thrilling, but extremely risky, investment theme.

Just over three years ago, I put together a portfolio of ten investment trusts I thought would sparkle going forward. Putting my money where my mouth is, I invested £100 in each of them (minus dealing costs and stamp duty) within my stocks and shares Isa.

I’ve been holding it for the long term, through thick and thin, as I do with nearly all my investments. But on Friday, prompted by a letter from a reader congratulating me on one of my picks, I took a rare peep at how the portfolio has performed.

In price terms, it has advanced 25 per cent (net of charges) – a modest gain, although this does not take account of the attractive income many of the trusts have paid by way of dividends (the likes of Aberforth Smaller Companies, Brunner, and Schroder UK Mid Cap). Income which I have gone on to reinvest at a later date when it has mounted up.

Although some trusts have disappointed – most notably Augmentum Fintech – there are two stars among the cast of ten.

First, step forward Templeton Emerging Markets which has turned £100 (£87.35 after charges) into £158. Note to readers: never forget the merit of adding emerging markets funds to a broadly diversified investment portfolio.

But Seraphim Space, take an almighty bow. This is the fund which reader George McBrown thanked me for picking. It has grown my £100 investment (£87.38 after charges) into £279.82, despite a sharp fall on Friday.

As the name implies, this trust, valued at £371 million, invests in companies involved in space-­related technology, be it the production of satellites, the building of a (space-based) broadband network, or the production of nuclear batteries to allow for longer lunar missions. All are leading edge, privately owned, unlisted businesses – and some are UK based (hip, hip, hooray!).

Last week it emerged Seraphim was among a number of companies involved in the raising of new funds (£60 million) for SatVu, a London-based business founded in 2016 which uses satellites to provide high-resolution thermal imagery from space.

Welcoming the funding, SatVu co-founder and chief executive Anthony Baker said: ‘This investment enables us to scale a UK-built, sovereign thermal capability into a multi-satellite constellation supporting government customers in the UK and across Allied nations worldwide.

‘From monitoring critical infrastructure and military supply chains, to detecting covert activity and verifying what others cannot, thermal intelligence is essential to modern ISR [intelligence, surveillance and reconnaissance].’

Great news for SatVu and reassuring for us as a nation. But scary in terms of what it says about the world’s geopolitics.

Putting the investment case for space to one side for a moment, Seraphim, which has boardroom representation at SatVu, demonstrates the crucial role that investment trusts play in backing innovative UK private businesses.

It’s a role the current Government doesn’t really understand, judging by its refusal to allow big pension funds to use holdings of investment trusts as qualifying assets to meet the Mansion House Accord. The accord is an agreement struck between Labour and a group of key pension providers to boost the funding of private businesses and infrastructure projects – primarily in the UK.

In other words, the kind of businesses that Seraphim Space is already backing.

No wonder Baroness Altmann, a former pensions minister in the 2015 Conservative Government led by David Cameron, is up in arms over their exclusion. As for those readers who bought into Seraphim when I tipped the trust three years ago, it might seem tempting to take some profits, especially given the shares are trading at a whopping 31 per cent premium.

But in a recent positive move, the trust revalued upwards its four biggest investments (including UK company All.Space) with chief investment officer James Bruegger anticipating ‘further positive news and commensurate increases in valuations over forthcoming quarters’. We should learn more when the trust posts its half-year results early next month.

All this points to a narrowing of the trust’s discount in the months ahead, and (hopefully) further share price gains, despite Friday’s correction. So I’m keeping my skin (all £280 of it) in the game.

Space is the future. It’s becoming increasingly accessible as a result of falling costs – reusable rocket technology, for example – leading to a surge in demand for satellites for both military and commercial means. The result is an industry in boom mode.

Seraphim gives me a splendid opportunity to enjoy the journey. But, of course, Seraphim is not the only avenue into this racy (and risky) investment theme.

For example, investors can get exposure to a basket of stock market listed ‘space’ companies by investing in exchange-traded fund VanEck Space Innovators.

Tracking the performance of the MVIS Global Space Industry ESG Index, this fund gives exposure to listed companies such as US businesses Rocket Lab (a manufacturer of space rockets) and EchoStar (specialising in satellite communication).

Over the past year, the fund’s shares have risen by more than 100 per cent. Investors could also consider UK defence stocks which are involved in the production of space tech. These include FTSE 100 listed BAE Systems, which builds satellites and satellite systems, and Babcock, part of the consortium that operates the Ministry of Defence’s Skynet satellite communications system.

Other UK companies with space interests are Chemring, a supplier of space components, and QinetiQ, a specialist in cyber security.

An alternative approach is to buy shares in an investment trust such as Scottish Mortgage, where a slice of its assets is invested in space-tech businesses. The fund is run by Edinburgh-based investment house Baillie Gifford and is part of the FTSE100.

Some 15 per cent of Scottish Mortgage’s £15 billion of assets are currently invested in Elon Musk’s aerospace company SpaceX – a privately owned business which recently merged with Musk’s artificial intelligence business xAI.

SpaceX’s Starship provides the rockets and spacecraft to transport crew and cargo (satellites, for example) into space. It is widely expected Musk will take the newly merged company public this year, with a stock market valuation in excess of $1 trillion (£740billion), triggering the potential for Scottish Mortgage to make handsome gains. It would be welcomed by shareholders, who are currently sitting on five-year losses of 7 per cent.

Other Baillie Gifford investment trusts that would also benefit include Edinburgh Worldwide and US Growth. They respectively have 15.8 and 11.7 per cent exposure to SpaceX – by far their biggest stakes.

Holding one of these trusts alongside Seraphim would be complementary rather than doubling up on the space technology theme. This is because Seraphim does not invest in SpaceX, preferring instead to focus on other areas of the space-tech universe.

Like all new investment themes, space is not for the faint hearted.

But as my experience has demonstrated with Seraphim, there’s money to be made provided you’re willing to be patient and not get scared out by shifts in market sentiment. If I’d lost my nerve in July 2023, I could have bailed out at about 26p a share, compared to a purchase price of just below 45p a share. Today, the shares trade at around £1.44.

Where next for Seraphim shares? To infinity and beyond?

No. But I’m strapped in and ready for a bumpy but ultimately rewarding ride.