SpaceX began trading on the Nasdaq-100 on July 7th following a rule change that allows newly public companies to join the benchmark after 15 days of trading. The aerospace company’s entry into major indexes has prompted discussion about the implications for index funds, which are widely regarded as one of the safest investment options available to retail investors.
Index funds seek to match specific market benchmarks like the S&P 500 or Nasdaq-100 by holding a diversified portfolio of stocks rather than requiring investors to pick individual securities. The concept gained prominence following the 1973 publication of “A Random Walk Down Wall Street” by Burton Malkiel, who argues that past stock prices do not reliably predict future performance. According to Malkiel and other proponents, most investors are better served investing in overall market returns rather than attempting to select outperforming individual stocks. Warren Buffett has similarly advocated for passive index fund investing. As of 2024, assets under management in passive investing surpassed those in active funds.
SpaceX’s IPO valuation exceeds $1.5 trillion, though the initial offering represented less than 5 percent of the company’s shares. Following the inclusion announcement, index funds were required to purchase SpaceX shares, a development that may have contributed to the stock’s initial performance. Additional shares held by company employees under lockup restrictions are expected to become available for sale, potentially affecting the stock’s price and its weighting in index funds over time.
Concerns about SpaceX in index funds center on governance structure and concentration risk. SpaceX grants founder Elon Musk majority voting control, limiting shareholder influence through typical governance mechanisms. Officials from CalPERS and New York state and city comptrollers have raised concerns about this arrangement. Some analysts worry that index fund concentration gives disproportionate power to a small number of fund managers and that the market’s heavy weighting toward large technology companies creates risk. However, Malkiel maintains that market concentration and periodic overvaluation of new technologies are longstanding phenomena that do not undermine the case for index fund investing.
Investors seeking to avoid SpaceX exposure may consider environmental, social, and governance-focused funds, though these typically charge higher fees and have produced lower returns than standard index funds. SpaceX is not included in the S&P 500 index, creating potential performance differences between funds tracking different benchmarks.