SpaceX, Elon Musk’s aerospace and AI company, has made history with the largest Initial Public Offering (IPO) ever, raising $75bn, and valuing it at close to $1.8trn.
This could mark the start of a new wave of high-profile listings, with companies like OpenAI and Anthropic expected to follow this year.
While the scale and hype around these IPOs is attracting significant attention, the key question for index investors is, when will index tracker funds invest?
This article isn’t personal advice. All investments can rise and fall in value, so you could get back less than you invest, and past performance isn’t a guide to the future. If you’re not sure if a course of action is right for you, ask for financial advice.
Why is SpaceX different to a typical IPO?
The SpaceX IPO stands out mainly because of its size. For context, the previous record-holder, Saudi Aramco, raised around $29bn in 2019.
But despite its scale, only around 4% of SpaceX shares were actually made available to the public as part of this listing. The majority are held by Elon Musk, employees and private investors. And there’s been strong interest from retail investors. Around 20% of the shares were specifically set aside for individual investors, much higher than the usual 5–10%.
The company is also highly likely to be included in most major indices relatively quickly, meaning additional demand from index tracker funds.
How do index funds treat IPOs?
Index funds aim to track the performance of a benchmark, like the S&P 500 or Nasdaq 100, rather than trying to outperform it. To do this, they typically invest in the same companies in the same proportions as the index.
However, a company doesn’t enter an index as soon as it lists on a stock exchange. Index providers have rules to determine when a company can be added and how large its position will be. This means there is a period when a company begins trading but won’t be appearing in an index yet.
Because of this, index funds might not buy shares at the IPO itself. Instead, they might invest closer to when the company is officially added to the index they track. This is to keep the fund’s performance in line with the benchmark.
Though index teams closely analyse IPOs as part of their investment process and look to trade efficiently to minimise costs.
When will SpaceX be added to major indices?
This depends on the index, and the rules vary between indices.
Many index providers now use ‘fast entry’ rules, which let large companies be added more quickly after listing. This is after as little as 5 trading days for FTSE indices, 10 for MSCI and 15 for Nasdaq.
Index providers usually base a company’s size in an index on its free float (the shares available to public investors), not its total value.
It’s not uncommon for index providers to make changes to their rules as markets evolve. And these changes are to make indices better reflect what’s trading in the market.
For example, Nasdaq has removed its minimum free float requirement, allowing companies like SpaceX with limited available public shares to still be included, although with some limits on their size.
Unlike other index providers, S&P has not changed its rules. It requires companies to have traded for 12 months before being considered for inclusion in its indices. Because of this, the earliest SpaceX could be added to the S&P 500 is June 2027.
Companies must also be profitable. Which currently, SpaceX is not, so it’s likely to be longer still.
On average, companies take nearly four years to enter the S&P 500. Tesla, for example, listed in 2010 but wasn’t added until 2020, despite being included in other major indices from 2013.
What does this mean for index investors?
Even though SpaceX is one of the largest public companies in the world, it doesn’t mean index funds will invest a large amount straight away.
Because only a small number of shares are available to trade, SpaceX’s weight in indices will start relatively modestly. In the Nasdaq 100 index, it’s estimated to enter at 0.50–0.70%. And in the MSCI World index, it’s expected to be around 0.08%.
So, despite the headline valuation, it won’t be dominating index tracker funds.
As private investors sell shares into the public market over time, more shares will become available for trading, increasing the company’s weight in indices. For index investors, this means exposure grows gradually rather than all at once.
But not all index funds will behave the same. Some funds may include SpaceX within weeks, while others, particularly those tracking the S&P 500, could take years. This can lead to differences in performance between funds tracking the same stock market, but different indices.
Investors should also be aware that some companies going public may not yet be profitable and their share prices can be volatile in the early years. As index providers allow faster inclusion in indices, investors may gain exposure to these companies earlier than in the past, bringing both opportunity and risk.
Though importantly, the core benefits of index investing remain unchanged – a simple, diversified, and cost-effective way to access the market.