Americans have invested more money in passive retirement S&P 500 index funds than any other investment. Vanguard and BlackRock’s S&P 500 ETFs alone manage nearly $2 trillion in assets, with the Vanguard ETF (FLIGHT) recently passed the $1 trillion mark.
But unlike other mutual funds and ETFs, they won’t be managing SpaceX stock any time soon for retail investors looking to get in on the stock’s action after Friday’s mega-cap initial public offering, the largest in the market’s history.
The index committee, which oversees the rules for adding new stocks to the S&P 500 index, rejected the largest initial public offering in history, at least in its first year.
With a new era of mega-cap stocks – OpenAI and Anthropic expected to follow SpaceX’s initial public offering on Friday with huge first-day offerings that push them into territory among the largest publicly traded companies in the US – the index manager was forced to make a decision on whether to extend its standard 12-month waiting period for new shares.
Unlike S&P, the index committees for market benchmarks Nasdaq and Russell announced they would update their rules. In simplest terms, this is what this means for index fund investors in the core US market.
“If you want SpaceX, you’re not going to buy the S&P 500. You’re going to buy that.” NASDAQ 100 or the Russell 1000,” Todd Sohn, chief ETF strategist at Strategas Securities, said on this week’s “ETF Edge.”
SpaceX Stock trading began on Friday on the Nasdaq and initially rose to a value of over $2 trillion. But if you hold an ETF like VOO or BlackRock IVVor the State Street SPDR S&P 500 Trust (SPY), you will wait until at least mid-2027 for your SpaceX presence.
Peter Haynes, head of index and market structure research at TD Securities, did not support the decision to maintain the long timeline for SpaceX’s inclusion in the S&P 500. “I personally didn’t agree with the decision,” he told ETF Edge.
Haynes said on the “ETF Edge” podcast portion that it was “a controversial discussion,” but added: “In my opinion, it’s a natural extension of what already exists in global benchmarks.”
He pointed to the example of Saudi Aramco, whose 2019 IPO was the largest IPO in history. At that time, both FTSE and MSCI created fast-track models for global benchmarks to include the stock in the indices after 5 to 10 days. “U.S. benchmarks were designed to follow the lead of global benchmarks,” he said. “You have a ‘Made in the USA’ stock that is significant and belongs in benchmarks,” Haynes said.
“This sets a precedent [the] “S&P will not add OpenAI and Anthropic when these IPOs occur,” Sohn said.
Sohn said the dueling decisions by index providers could lead to an “index war” — particularly performance differences between the S&P 500, the Nasdaq and other indices.
Haynes added that it could take longer than a year, “much longer,” he said, for S&P 500 investors to buy into SpaceX, as the index committee also maintained its “profitability test” for stocks, which could exacerbate any performance issues between the S&P 500 and other popular U.S. benchmarks.
SpaceX was valued at $1.77 trillion in its IPO but remains a high-risk investment with a net loss of $4.28 billion in the most recent quarter. OpenAI and Anthropic are burning through significant amounts of cash, recording losses while generating significant revenue. Expect them to face the same scrutiny from the S&P 500 that SpaceX is facing right now.
There are other ways for fund investors to gain exposure to SpaceX as a complement to a core portfolio position such as an S&P 500 fund. A handful of ETFs, mostly thematic space and technology innovation funds, have already held SpaceX through direct investments before the IPO. There has been a rush by investors into space stocks and space ETFs in recent weeks. For example, the Space Innovators ETF from Tema ETFs (NASA) launched on May 30 and has reached $2.6 billion in assets. It is one of the funds that offered direct access to SpaceX before the IPO.
Risk-oriented investors can also take part in a new wave of leveraged ETFs just hitting the market that offer up to 2x daily performance of SpaceX stock, as well as bullish and bearish bets. ProShares will launch the Ultra SpaceX ETF (SPCF) next Monday, aiming to deliver twice the stock’s daily performance. GraniteShares will launch two similar funds: GraniteShares 2x Long SpaceX Daily ETF (SPAL) and GraniteShares 2x Short SpaceX Daily ETF (SNK).
Sohn warned that these leveraged investments come with major boom and bust cycles and are typically designed for day traders rather than long-term investors seeking diversification. Losses mount quickly on these investments and expense ratios are relatively high because they are intended as trading tools rather than core holdings.
For most investors, the biggest takeaway is that the index they have long relied on to capture the biggest names in the U.S. market is leaving this index out. But expect ETF managers to stay creative with new ideas to meet investors where they aren’t yet. “I would think some of the smaller ones are independent [ETF] The issuers go to another index provider and create a “S&P+SpaceX…’Large-Cap+SpaceX’…’+Anthropic’.” … There’s nothing the ETF industry can’t do in terms of creativity,” Sohn said.
Subscribe to our weekly newsletter that goes beyond the live stream and offers a closer look at the trends and numbers shaping the ETF market.
Disclaimer