Space Exploration Technologies (SPCX -1.20%), better known as SpaceX, shattered records with its IPO, issuing almost $86 billion in stock. And while management favored retail investors with its IPO allocations, institutional investors still held a huge amount of the stock as of the end of the quarter. Filings with the SEC revealed 1,941 professional investment managers and corporate investors held more than $600 billion worth of the stock as of June 30.
Many of those shareholders were required to hold their shares through July, but in August, they finally got the opportunity to cash out some of their investments, and they’ll have even more opportunities in September and October. Meanwhile, index funds will be buying up shares as more of the stock becomes publicly available.
The competing forces are important for everyone to understand, from individual SpaceX shareholders to index fund investors.
Image source: The Motley Fool.
How much SpaceX stock are index funds buying?
When SpaceX filed to go public, many popular stock indexes updated their rules so that the giant space technology company would be included in their indexes shortly after its public market debut. Some of the most popular stock indexes with SpaceX already included are:
- Nasdaq-100, which can be tracked using the Invesco QQQ Trust (QQQ +0.18%)
- Morningstar US Total Market, which can be tracked using the Vanguard Morningstar Total Stock Market ETF (VTI -0.32%)
- Russell 1000, which can be tracked using the iShares Russell 1000 ETF (IWB -0.37%)
Notably absent from the list is the S&P 500, which refused to update its inclusion criteria. SpaceX won’t be eligible for the popular large-cap index for at least a year after its IPO.
All three of the above indexes began with relatively small weightings for SpaceX. That’s because the company only offered about 5% of its entire company to the public with its IPO. The indexes are designed to reflect the publicly available investable universe. The Nasdaq-100 has the highest weighting for SpaceX. Not only does it have the fewest other constituents in the portfolio, but it also triples the float-adjusted market cap, meaning SpaceX could be fully market-cap weighted in the index once 33.4% of its stock is available to the public, which will likely occur before the end of the year.
Today’s Change
(0.18%) $1.29
Current Price
$718.96
Key Data Points
AUM
$490B
Dividend Yield
0.42%
Expense Ratio
0.18%
Top Holdings
NVDA
8.85%
AAPL
7.46%
MSFT
5.90%
With the lockup expirations in August and further expirations in September, October, and November, the indexes are set to increase SpaceX’s weighting when they next rebalance. The Morningstar index and Nasdaq-100 will rebalance in mid-September. They’ll increase the weight of SpaceX by about 3.4 times. The Russell 100 index will update later this year, and it’ll see an even bigger increase as more share unlocks will have occurred by the time it’s set to rebalance.
Considering the billions of dollars locked up in index funds tracking these indexes, plus all the mutual funds benchmarked against them (which incentivize fund managers to add exposure to SpaceX), there will be many buyers of SpaceX stock over the next few months.
But as mentioned, there are hundreds of billions of dollars worth of shares locked up, most of which will come to market by the end of the year. Most early investors are likely eager to take the stock off their books, as the massive gains may have left their portfolios heavily concentrated. It’s unclear if the forced buying will be enough to offset the selling pressure.
Which side should you be on?
It’s worth noting that many of the early investors may sell SpaceX stock not because they think it’s a bad investment, but to reduce their concentration risk. At the same time, index fund managers will buy the stock not because they think it’s a good investment, but because they’re required to do so.
Index investors are caught in the middle. Those looking to avoid the stock could shift more of their assets to the S&P 500 and other indexes that won’t include it until next year at the earliest. But for many investors locked into certain funds, it’ll be hard to avoid. The stock will account for a growing percentage of their investment portfolio, whether they’re bullish on the company or not.
Space Exploration Technologies
Today’s Change
(-1.20%) $-1.79
Current Price
$147.95
Key Data Points
Market Cap
Day’s Range
$147.32 – $150.85
52wk Range
$104.83 – $225.64
Volume
49.1M
Avg Vol
111.9M
Investors focused on the individual stock may find that near-term pressure from insider and early investor selling could create buying opportunities. Importantly, the value of SpaceX stock is heavily dependent on high growth expectations for its artificial intelligence and communications businesses, including technologies that have yet to prove themselves viable or scalable. Valuing the stock based on its recent financial results or even near-term expectations results in multiples that make little sense. If the stock price comes under pressure from early investors unloading large stakes, though, the price could become enticing given the business’s long-term potential.
In the meantime, investors should expect significant volatility in the stock as lockup expirations trigger large selling events and index rebalancing triggers large buying events.