SpaceX made its public market debut last week and AJ Bell DIY customers took up the opportunity with more vigor than any other IPO in the past.
The public relished the opportunity to buy into SpaceX’s stock market offer, judging by demand on AJ Bell’s DIY platform.
We saw more than five times the number of applications to buy shares than any IPO we’ve had on the platform in the past 10 years.
Other popular IPO offers have included health and wellness products group Applied Nutrition, low-cost computer maker Raspberry Pi, specialist lender Shawbrook, and Fundsmith's small to mid-cap investment vehicle, Smithson.
The level of demand to buy SpaceX shares implies investors are keen to add a new dynamic to their portfolio. SpaceX is the market leader in the space economy and Elon Musk has form in making money for investors in the past.
That combination has fired up investors to get involved, even though SpaceX’s rich valuation is based on what it might do in the future, not the present day. This is a classic ‘jam tomorrow’ stock, and many investors seem happy to take the risk of backing the business in hope of intergalactic returns.
Gender and account split
Men accounted for three quarters of applications on AJ Bell’s platform for the SpaceX IPO. This is partly explained by there being more male investors on the platform, but the split suggests men felt more comfortable shooting for the stars on an IPO.
ISAs were the most popular account type to hold the SpaceX stock bought in the IPO offer on AJ Bell’s platform, representing half of all orders. SIPPs (self-invested personal pensions) accounted for one third of orders, which rubbishes the idea that some retail investors only bought the stock to flip it for a quick profit. Many investors use their SIPP for long-term positions, adopting a buy and hold mentality.
Seven in 10 retail investors applying for SpaceX stock on AJ Bell’s platform already held other companies’ shares in their account. For most people this won’t be the first time they’ve held individual shares, which can be more volatile than a fund that holds a basket of different assets.
It’s common to see first-time investors start their journey with low-cost tracker funds rather than individual shares as such investments provide instant diversification and help to spread risks across multiple assets.
How did AJ Bell customers fund their SpaceX purchase?
AJ Bell analysed customer activity for everyone who placed orders for SpaceX shares during the one-week offer period (4 to 10 June) to see how they might have funded their applications.
There had been a worry in the market that we would see heightened volatility among some of the best performing shares in recent years, for fear investors would take profits in multiple holdings to generate the money to buy SpaceX shares.
Interestingly, only 20% of AJ Bell customers applying for SpaceX stock sold investments during the offer period, while 40% topped up with new cash and the rest already had money on hand to invest in their ISA, pension or dealing account, suggesting only a minority sold out of a position to fund their investment in SpaceX.
That implies most investors are committed to their existing portfolio and want to let it grow, rather than cashing in their winners or cutting losses on the laggards to participate in the IPO. Constant fiddling of portfolios can quickly rack up costs, eating into investors’ returns.
Tesla out, SpaceX in
Of the SpaceX applicants who sold investments during the IPO offer period, Tesla was one of the most sold by AJ Bell customers.
The trend implies investors are buying into the earnings potential of SpaceX rather than the person running it. Elon Musk has a fanbase, but not everyone is loyal to all his business ventures, and some investors may fear being over-exposed to such a high-profile individual.
Tesla had a first mover advantage in the electric vehicle space which helped to generate significant value in the business. When one company prospers on this level, it’s only natural for rivals to have a bite at the cherry and find ways to leapfrog the leader such as through lower prices or more advanced systems.
That’s exactly what’s happened with Tesla, so perhaps a portion of its shareholders now think the car company has had its day in the sun and therefore all the easy money has been made on Tesla. There are a lot of similarities between Tesla a decade ago and SpaceX today, as the latter is also streets ahead of its rivals – but for how long is anyone’s guess.
Younger investors ditched US trackers
A US equity tracker fund was the most popular choice to offload among younger investors applying for the SpaceX IPO.
During the one-week offer period, nearly twice as many SpaceX IPO applicants in the 18 to 29 age group sold the Vanguard S&P 500 ETF compared to the next most popular choice. This is particularly interesting as S&P is the only major index provider to say it won’t give SpaceX fast-track entry into its main indices.
Investors with existing US exposure might have thought they would be doubling up by adding SpaceX, given that it might quickly be a part of a US tracker fund, instead choosing to get direct exposure. But inclusion in the S&P 500 index could still take 12 months for SpaceX, and the requirement to be profitable might push back the qualification date given the business is currently loss-making.
Other stocks and funds sold by SpaceX IPO applications among those aged 18 to 29 during the offer period included precious metals fund iShares Physical Gold, airline EasyJet and chip giant Nvidia.
Gold has lost its shine this year, whereas Nvidia has been more resilient. EasyJet is currently subject to a takeover bid, and SpaceX applicants might have thought it was worth selling into the recent bounce in the share price while the going was good.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
