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

Americans have more money invested for retirement in passive S&P 500 Index funds than any other investment. The Vanguard and BlackRock S&P 500 ETFs alone manage nearly $2 trillion in assets, with the Vanguard ETF (VOO) recently passing the $1 trillion mark.

But unlike other mutual funds and ETFs, they won’t be managing SpaceX shares any time soon for retail investors who want to get a piece of the action in the stock after Friday’s mega-cap IPO, the biggest in the history of the market.

The index committee that oversees the rules for new stock inclusion in the S&P 500 Index said no to the biggest IPO in history, at least for the first year of its public market trading history.

Faced with a new era of mega-cap stocks — with OpenAI and Anthropic expected to follow the SpaceX IPO on Friday with huge offerings pushing them into the territory of the largest publicly traded companies in the U.S. on day one — the index manager was forced to make a call on whether to move up its standard 12-month waiting period for new stocks.

Unlike the S&P, index committees for the Nasdaq and Russell market benchmarks said they would update their rules. In the simplest terms, here’s what that means for core U.S. market index fund investors.

“If you want SpaceX, you’re not buying the S&P 500. You’re going to buy the NASDAQ 100 or the Russell 1000,” said Strategas Securities chief ETF strategist Todd Sohn on this week’s “ETF Edge.”

SpaceX shares began trading on the Nasdaq on Friday, initially rising to a value above $2 trillion. But if you hold an ETF like VOO, or BlackRock’s IVV, or the State Street SPDR S&P 500 Trust (SPY), you will be waiting for your SpaceX exposure until at least mid-2027.

The decision to leave in place the long window before SpaceX ever becomes part of the S&P 500 is not one that sat well with Peter Haynes, TD Securities’ head of index and market structure research, supported. “Personally, I didn’t agree with the decision,” he told “ETF Edge.”

Haynes said in the podcast portion of “ETF Edge” that it is “a controversial discussion,” but he added, “In my mind, it’s a natural extension of what exists already in global benchmarks.”

He pointed to the example of Saudi Aramco, which when it went public in 2019 was the largest IPO in history. At that time, both FTSE and MSCI created fast-track models for global benchmarks to add the stock to indexes after 5 to 10 days. “U.S. benchmarks were geared to follow the lead of global benchmarks,” he said. “They have a ‘Made in the USA’ stock that is sizable and belongs in benchmarks,” Haynes said.

“What this is doing is setting a precedent that [the] S&P will not add OpenAI and Anthropic when those IPOs happen,” Sohn said.

Sohn said the dueling decisions from the index providers could create an “index war” — specifically, performance dispersions between the S&P 500, Nasdaq, and other indexes.

Haynes added it could be longer than a year, “much longer,’ he said, before S&P 500 investors get exposure to SpaceX because 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 valuation in the IPO, but it remains a high-risk investment with a net loss in the latest quarter of $4.28 billion. OpenAI and Anthropic are burning through cash at a significant rate and racking up losses while generating a substantial amount of revenue. They can be expected to face the same scrutiny from the S&P 500 that SpaceX just did.

For fund investors, there are other ways to get exposure to SpaceX as a complement to a core portfolio position like an S&P 500 fund. A handful of ETFs, mostly thematic space and tech innovation funds, have already been holding SpaceX through pre-IPO direct stakes. There has been a rush by investors into space stocks and space ETFs in the past few weeks. For example, Tema ETFs’ Space Innovators ETF (NASA) launched 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 will also be able to get in on a new wave of leveraged ETFs just launching to offer up to 2x daily performance of SpaceX shares, bullish and bearish bets. ProShares will launch the Ultra SpaceX ETF (SPCF), seeking to get 2x the daily performance of the stock, 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 levered investments come with big boom-and bust cycles and are typically intended for day traders rather than long-term investors seeking diversification. Losses compound rapidly in these investments and expense ratios are relatively high since they are intended as trading vehicles 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 sitting this one 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 independent [ETF] issuers will go to another index provider and they will create an ‘S&P+SpaceX … ‘large-cap+SpaceX’ … ‘+Anthropic.’ … There is nothing the ETF industry can’t do in terms of creativity,” Sohn said.

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