^^^^^ This.

And to elaborate, the "space" key is necessary because the caret is one of those characters that can be used both stand-alone as well as an accent to certain letters in some languages (the tilde "~" is another common one, among others). So, basically for those characters that are "dual-use", you have to follow the selection of that special character with what it should accent. In this case, you select "space" as the character to be accented and the caret will appear by itself as a space is not considered a valid accent-able letter and thus it's smart enough to just put in the caret by itself. If you put in another character that is not valid, it will append that character AFTER the caret rather than put the caret on top of it. If you have a valid accent-able character (for instance, "u"), it will put the caret on top of it.

Hope that helps the OP and anybody else