SpaceX (NASDAQ: SPCX) is now about seven weeks removed from the largest initial public offering (IPO) in history and to put it delicately, the stock has lost altitude in its brief time as a public company, shedding nearly 23% of its value.
When measuring the performance from the post-IPO peak to late July 29 levels, the tumble is even worse at 29.29%. However, it’s not surprising as history is littered with examples of tentpole IPOs faltering before the stocks went on to notch substantial gains. Coinbase, Meta Platforms (Facebook at its IPO) and Robinood Markets, among others, are all examples of well-known stocks that sold-off following their IPOs before notching big upside.
SpaceX’s post-IPO slump is also a reminder of the utility of ETFs. As of July 29, 203 ETFs hold shares of SpaceX with 35 featuring the stock among their top 15 holdings. Those figures result from a combination of active management and index providers altering rules to accommodate fast-tracking of the space stock.
Among the index providers that rapidly shares of SpaceX are FTSE Russell and MSCI, which is meaningful to advisors and clients because a slew of Vanguard ETFs track benchmarks compiled by those companies. Good news: SpaceX isn’t yet looming large in any Vanguard ETF.
SpaceX Not Dominating Any Vanguard ETFs
As of June 30, 14 Vanguard ETFs featured some exposure to shares of SpaceX, but as indicated in the table below of the top four ETFs in that group, the stock isn’t too prominent in any Vanguard ETF.
(Image Courtesy: Vanguard)
“The SpaceX IPO demonstrates that the journey in market capitalization and strength in indexes starts with a small step, a point which can be helpful for sharing with clients so that they can see the impact of this and other large IPOs,” notes Vanguard. “In Vanguard’s index-based funds and ETFs, SpaceX initially has taken up satellite positions, about 0.30% or less for most index funds, which is in line with Vanguard’s initial projections.”
A big reason why SpaceX isn’t looming large in Vanguard ETFs, and plenty of other index-based ETFs for that matter, is because a small percentage of the stock is freely floating. That’s going to change in a matter of weeks and into year-end as various lock-up periods end.
“Only about 5% of the SpaceX shares were released to the public. While that release was a still sizable $75 billion, it is still small in comparison with the large-cap stocks that dominate the U.S. public equity market,” adds Vanguard.
This Scenario Will Change, Sort Of
It’s obviously speculative, but let’s assume SpaceX’s market cap holds steady at $1.4 trillion or can stay above $1 trillion as insiders sell shares in the months ahead. Should that happen, the stock will become a more prominent fixture an array of ETFs, including some Vanguard funds.
However, even as the SpaceX float increases, it probably won’t take on outsized percentages of total market ETFs, such as the $663.5 billion Vanguard Total Stock Market ETF (VTI) – one of the largest ETFs in the world. In order for SpaceX to command big weights in funds like that, its market cap needs to appreciate.
Advisors and investors wondering about a Vanguard ETF in which SpaceX could command a large weight over the near-term may want to examine the Vanguard Communication Services ETF (VOX). Obviously, that’s a sector ETF (one tracks an MSCI index) and as such, there’s less competition for real estate. So when more SpaceX shares are freely floating, it’s possible the stock could be nearly as prominent in VOX as are Meta and Alphabet and that’s saying something because those three stocks (two Alphabet share classes) combine for more than 42% of the fund’s portfolio.