S&P 500 made big call on SpaceX IPO. Index investors need to know it

Americans are putting more money away for retirement in passive S&P 500 Index provides more funds than other investments. Vanguard and BlackRock S&P 500 ETFs alone manage nearly $2 trillion in assets; Vanguard ETF (VOO) recently surpassed $1 trillion.

But unlike other mutual funds and ETFs, they won’t be able to command SpaceX shares anytime soon for retail investors looking to get a piece of the action in the stock after Friday’s largest IPO in market history.

The index committee, which oversees the rules for including new stocks in the S&P 500 Index, said no to the largest IPO in history, at least in its first year of public market trading.

Facing a new era of mega-cap stocks, with OpenAI and Anthropic expected to push Friday’s SpaceX IPO into the territory of the largest publicly traded companies in the U.S. with large offerings, the index manager was forced to make a call on whether to extend the standard 12-month waiting period for new stocks.

Unlike the S&P, Nasdaq and Russell index committees for market benchmarks, Update your rules. In simplest terms, here’s what this means for core index fund investors of the U.S. market.

“If you want SpaceX, you don’t buy the S&P 500. NASDAQ100 or Russell 1000Strategas Securities chief ETF strategist Todd Sohn said on this week’s “ETF Edge.”

SpaceX Its shares began trading on Nasdaq on Friday and initially rose to over $2 trillion. But if you own an ETF like VOO or BlackRock IVVor State Street SPDR S&P 500 Trust (SPY), you’ll expect to have exposure to SpaceX until at least mid-2027.

SpaceX’s decision to leave the long window in place before becoming part of the S&P 500 is not one supported by Peter Haynes, head of index and market structure research at TD Securities. “Personally, I disagree with this decision,” he told ETF Edge.

Haynes said on the podcast episode of “ETF Edge” that it was a “contentious debate” but added: “I think it’s a natural extension of what already exists in global benchmarks.”

He pointed to the example of Saudi Aramco, which was the largest IPO in history when it went public in 2019. At the time, both the FTSE and MSCI quickly created models for global benchmarks to add the stock to indices after 5 to 10 days. “The US criteria are designed to follow the global criteria,” he said. “They have a pretty large stock of ‘Made in the USA’ that is in the benchmarks,” Haynes said.

“What this does is set a precedent [the] “S&P will not add OpenAI and Anthropic when these IPOs happen,” Sohn said.

Sohn said dueling decisions by index providers could create an “index war,” particularly performance spreads among the S&P 500, Nasdaq and other indexes.

Haynes added that it could take “much longer” than a year for S&P 500 investors to gain exposure to SpaceX because the index committee is also continuing its “profitability testing” of the stock, which could exacerbate any performance problems between the S&P 500 and other popular U.S. benchmarks.

SpaceX’s value in the IPO was set at $1.77 trillion, but it remains a high-risk investment with a net loss of $4.28 billion in the last quarter. OpenAI and Anthropic are burning significant cash and making losses while generating significant revenue. They can be expected to face the same S&P 500 review that SpaceX just did.

There are other ways for fund investors to leverage 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, currently hold SpaceX through direct stakes ahead of the IPO. There has been an influx of investors into space stocks and space ETFs over the past few weeks. For example, Theme ETFs Space Innovators ETF (NASA) began operations on May 30 and has reached $2.6 billion in assets. One of the funds offering direct access to SpaceX before its IPO.

Risk-minded investors will also be able to participate in a new wave of leveraged ETFs that have begun offering bullish and bearish bets of up to 2x the daily performance of SpaceX shares. ProShares will launch Ultra SpaceX The ETF (SPCF) aims to achieve 2x the stock’s daily performance next Monday. GraniteShares will launch two similar funds: GraniteShares 2x Long SpaceX Daily ETF (SPAL) and GraniteShares 2x Short SpaceX Daily ETF (SNK).

Sohn cautioned that these leveraged investments come with major boom and bust cycles and are generally geared toward day traders rather than long-term investors looking for diversification. Losses mount rapidly on these investments, and expense ratios are relatively high because they are designed as trading vehicles rather than underlying assets.

The biggest takeaway for most investors is that the index they have long relied on to capture the biggest names in the U.S. market is missing from this index. But we expect ETF managers to stay creative with new ideas to meet investors where they haven’t met yet. “I think some of them are smaller independent [ETF] issuers will go to another index provider and create a ‘S&P+SpaceX … ‘large value+SpaceX’ … ‘+Anthropic’. … There’s nothing the ETF industry can’t do in terms of creativity,” Sohn said.

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