Didn’t Buy SpaceX On Friday? You Might Already Be Invested.

Many Americans are about to own SpaceX even if they didn’t participate in Friday’s Initial Public Offering.

Starting this Friday, SpaceX will be appearing in many personal and retirement investment accounts through diversified index funds that track the broader stock market. The company will be added to the CRSP U.S. Total Market Index, a benchmark tracked by numerous 401(k)s, IRAs, pension plans, and target-date retirement funds. Many employer-sponsored retirement plans offer Vanguard total-market funds that replicate the index, giving millions of Americans exposure to SpaceX.

Others will gain exposure to SpaceX 15 trading days after its IPO, when the Nasdaq-100 adds the company to the index. The Invesco QQQ ETF, which tracks the Nasdaq-100, will then add SpaceX to its holdings. QQQ is one of the most heavily traded exchange funds in the world.

While SpaceX will be just one of the 100 companies in the Nasdaq-100, Nasdaq is giving it an outsized weighting. Because most of SpaceX’s shares remain owned by insiders, only a limited number are available for public trading. To account for that small public float, Nasdaq is applying a factor of three to SpaceX’s float-adjusted value, increasing its weight in the index and requiring funds such as QQQ to buy more of the stock than they otherwise would.

The S&P 500, one of the world’s most widely followed stock indexes, will not add SpaceX immediately. The S&P 500 does not allow eligible companies into its fund until it’s traded on an eligible exchange for at least 12 months. The S&P 500 has a 12-month wait time to help mitigate potentially adding a company at an inflated valuation and avoid potentially large price swings. 

Another group that could potentially end up owning SpaceX is Tesla shareholders. Elon Musk has reportedly floated the possibility of a merger between Tesla and SpaceX. If such a deal were pursued, SpaceX’s larger valuation could make it the acquiring company. In an all-stock or cash-and-stock transaction, Tesla shareholders could receive SpaceX shares in exchange for their Tesla stock, effectively making them SpaceX investors.

While the S&P 500 did not change its rules to allow SpaceX in early, the Nasdaq and the FTSE Russell did make accommodations prompting a stern letter from Senator Elizabeth Warren (D-MA).  

“Traditionally, index providers — including your firms — have maintained rules for the inclusion of companies on their indexes, which are meant to protect passive investors and maintain the credibility of each index,” wrote Warren. “The changes to your index rules to accommodate these large companies, however, have the potential to destabilize markets and create significant risks for American investors, especially retirees and other individuals that rely on index funds for their savings.”

Supporters of rule changes argue that SpaceX should be allowed into major indexes because it qualifies regardless of its recent IPO and is a “Made in the USA stock that is sizable and belongs in benchmarks,” according to TD Securities Head of Index and Market Structure Research Peter Haynes.

“What this is doing is setting a precedent that the S&P 500 will not add OpenAI and Anthropic when those IPOs happen,” added Strategas Securities Chief ETF Strategist Todd Sohn.