SpaceX To Be Fast Tracked Into Major Indices (and What You Can Do About It)
You may of heard about Elon Musk’s upcoming SpaceX IPO being fast-tracked into the major indices which means its likely being pushed into your investment portfolio. What’s changing, how will it impact your retirement and what can you do about it?
Major Indices Overhaul Their Criteria in Advance of SpaceX IPO
On May 1st, the Nasdaq 100 changed their rules for companies to be listed in the index in order to fast track SpaceX into the index. The shortened the requirement of stocks being listed for three months minimum before being eligible down to just fifteen days. The also dropped the requirement that at least 10% of the shares are publicly traded.
Last week the Russell made similar rule changes. Next week it is expected the S&P will drop time and profitability requirements.
So… What Does This Mean for Me?
As I said back in April I wouldn’t be surprised if the SpaceX IPO did well… at least in the short term. The markets have, at times, seemed detached from soaring valuations or the middle-east conflict. Musk’s name command a lot of attention in the investing world so between the billions of dollars of forced-buying the stock from index investors. and eager fanboys who believe anything he touches turns to gold, SpaceX popping during the first couple weeks of trading wouldn’t shock me. Long term however it gets very murky, very fast.
There are already growing concerns about high valuations of AI focused companies (more on that below). You throw in these red hot IPOs (Anthropic has started paperwork to IPO and OpenAI is expected to IPO in the near future as well) and you may be right to question how much longer “number go up”.
Good news is passive index investors don’t have to do anything if they don’t want to. SpaceX is anticipated to have between 0.5% and 1% weight in the index. It would make up a relatively small portion of your index fund.
If you are opposed to the use of your retirement funds to unlock equity for Elon Musk, or these passive funds seemingly taking an active approach, that is a different problem for which there is a solution.
Direct Indexing
Instead of buying an index fund, Direct Indexing is purchasing the constituents of an index directly. Offers much of the same diversification benefits as buying index funds, but lets YOU fine tune it. Whether its excluding certain companies (SpaceX, Tesla, Palantir, tobacco/alcohol/gun companies, etc.) reducing weights of companies with high valuation ratios or increasing the weights of companies with healthy dividend payouts, the possibilities are practically endless.
In addition to control over what types of companies you invest in it can also give you more control over taxable events. Where funds are forced to buy or sell you can choose. You can cut the underperformers for tax-loss harvesting and sell high fliers tactically to minimize taxes.
Many popular brokerage platforms offer direct indexing to clients who meet certain minimums…
FYI we help set up our financial planning clients with tailored portfolios with no investment minimum.
So you always have options if you want to align your beliefs with your investment portfolio.
Macro Indicators in May
U.S Stocks
$SPY +4.97% MTD
U.S Treasury
10 Year Yield +1.46% MTD
Volatility
VIX -9.83% MTD
Long Term Outlook
The equity markets were positive last month but the growth was driven almost entirely by semiconductor names. History would indicate that unless the rally widens out it is not sustainable.
A few large names dragging the index up does not a bull market make.
All market cycles end and I recognize how easy it is to become a “perma-bear”, someone who’s always bearish (negative) on the markets. So in an attempt to stay positive I look for opportunities in the equity market. I have been continuing many of the themes I discussed last month. We’ve been focusing on dividend stocks and shorter term bonds to add some cushion if this market corrects.
