You might be investing in SpaceX soon without realising it

Investors who opted not to buy shares in SpaceX’s record-breaking IPO last week may want to double check whether or not they’re due to have a stake in Elon Musk’s newly-listed venture in the near future.

Chances are that if you hold a global or US tracker fund in your portfolio then you will have some SpaceX exposure before too long.

How you could own SpaceX without buying it directly

SpaceX made its $1.78 trillion public market debut on the Nasdaq exchange last week, the US’ premier destination for tech companies.

Indices, like the Nasdaq 100, along with the S&P 500, FTSE 100 and MSCI World, are collections of stocks on different public markets. They each have their own members and characteristics, and a huge industry called passive investing is built on mimicking their returns.

‘Passive’, ‘tracker’, and ‘ETFs’ are all terms for funds which mimic the returns of a benchmark by copying the makeup.

They’re a popular type of fund because they offer cheap exposure to a lot of assets, but a key factor is that they make no discerning active calls about what they will and won’t hold.

Passive funds are effectively ‘forced’ buyers of the benchmark which, coming back to SpaceX, is why James Flintoft, head of investment solutions at AJ Bell, says the “most important question for portfolios using index or passive strategies is not whether SpaceX is a good investment – it is: will you hold it, where and when?”.

This depends on which index your fund is tracking.

Changes to ‘inclusion rate’

SpaceX is listed on the Nasdaq exchange which has two main related indices, the Nasdaq 100 (encompassing the biggest companies on the exchange) and Nasdaq Composite.

It’s worth noting that if you own a Nasdaq tracker you won’t ‘own’ SpaceX just yet though. Companies have to trade for a set period of time before they’re included in the index.

For the Nasdaq, this is usually eight weeks but in the run-up to the SpaceX float, a ‘fast entry’ route was pushed through, meaning it will join after just 15 trading days.

Other index providers have followed suit, with the FTSE Russell shortening its inclusion runway down to just five trading days for large companies in both the Russell US Equity indexes and the FTSE Global Equity index series, and MSCI has gone down the middle with 10 days.

S&P, which owns the main US equity index S&P 500, is an outlier, having decided not to change its inclusion criteria for new listings such as SpaceX and maintained that a company must have traded publicly for 12 months and meet its profitability thresholds to be eligible.

Shortening the time a company must wait before being included in a benchmark isn’t SpaceX-specific, it’s been happening with increasing frequency over the past few years as providers compete to score the big names in their indices first.

Emily Spurling, global head of index at Nasdaq Global Indexes, said this change specifically had been made now partly because companies have been staying private for longer and becoming more mature before they come to market. This represents a shift from the previous scenario where newly listed businesses would often go through a more challenging growth phase first.

What this means for your portfolios

AJ Bell’s Flintoft explained that “if your US equity exposure is sourced through S&P 500 trackers, which is the case for the AJ Bell Managed funds you will not hold SpaceX at listing, nor for some considerable time thereafter. This is not an oversight or a gap; it is simply how the index is constructed, and that construction exists for sound reasons including ensuring financial viability".

“If your portfolios include Nasdaq100 trackers, FTSE Russell-based products, MSCI World or MSCI All Country funds, those products will acquire exposure within weeks of listing," he added.

You own a Nasdaq 100 ETF, why isn’t SpaceX in the top 10?

Come 7 July when SpaceX joins the Nasdaq 100, investors may be confused why they can’t see it among the list of biggest names.

This is because the Nasdaq 100 – and indeed many other equity indices – are weighted by market value but more specifically, by their ‘float adjusted’ market value.

The market value means the value of all the shares in a company determine its weighting in the index.

At a headline level it would be fair to assume that the bigger a company’s valuation, the more it determines the direction of the index. Rough calculations would suggest SpaceX making up almost 5% of the benchmark based on an initial $1.75 trillion valuation.

But the ‘float adjusted’ value encompasses the number of shares which are available to buy and sell on the market.

When SpaceX floated only around 4% of its shares were freely traded, with the remainder held by Musk himself, insiders and early investors. Even though the free float was expected to change post IPO it will still be significantly lower than other major US listed firms, Microsoft’s for example is over 99%. So, based on the situation at listing, SpaceX ‘only’ accounted for 0.61% of the Nasdaq 100.

This rule ensures the providers of tracker funds can buy another liquid share to replicate the performance of the index. The free-float condition doesn’t apply to the Nasdaq Composite index which is weighted according to the headline valuation.

Previously, a company needed to have a free float which makes up 10% of its shares, but this threshold was recently reduced by Nasdaq, FTSE Russell, MSCI, and S&P.

Anthropic, the AI company behind ClaudeAI, and rival OpenAI have both begun preparation to join the stock market and could become major components of relevant indices.

What history tells us about IPOs

Terry McGivern, AJ Bell’s senior research analyst, points to some of the previous historic public listings for context.

“What can history tell us to expect from historical mega IPOs? The honest answer from the data is probably to expect a bumpy ride, at least initially,” he said.

“When Meta went public in 2012, the stock fell more than 50% in its first four months and spent over a year below its IPO price. Uber had a nearly identical experience in 2019, losing around a third of its value before eventually finding its footing. Academic research covering US IPOs from 1980 to 2024 found that newly listed companies underperformed their market peers by between 3% and 5% per year, on average, over the five years following listing and the pattern is remarkably consistent across sectors and different historical periods.”

He said an important thing to remember is that the SpaceX story, like all IPOs, won’t end in the first year but will become clearer after it’s gone through a few market cycles.

Using Uber as an example, McGivern recalls how the taxi-hailing service went on to deliver roughly a 100% return from its offer price, “once the market stopped debating whether its ride hailing service was viable and started pricing it as the infrastructure business it turned out to be”.