The SpaceX initial public offering, anticipated to be the largest in history, is generating significant market excitement. However, financial experts caution that IPOs can present considerable risks for the average investor, particularly in the volatile early stages.
A primary concern highlighted by analysts is that companies often remain unprofitable in the period immediately following their IPO. For individual investors, concentrating capital in single stocks rather than diversified investment funds can amplify this volatility due to the concentrated nature of their holdings.
Fortunately, there are alternative avenues for investors seeking exposure to SpaceX beyond direct stock purchase. A multitude of mutual funds and exchange-traded funds (ETFs) already hold, or are poised to hold, SpaceX shares as part of broader investment portfolios. This applies similarly to other highly anticipated blockbuster IPOs, such as those from Anthropic and OpenAI, expected later this year.
“Investors will have access to the stock through various channels beyond directly participating in the IPO,” noted Zachary Evens, an analyst specializing in passive strategies at Morningstar.
With an anticipated share price of $135, SpaceX is set to command a valuation approaching $1.8 trillion, positioning it as the seventh-largest U.S. company by market capitalization. This landmark IPO could also elevate CEO Elon Musk to become the world’s first trillionaire.
### Gaining Exposure to SpaceX Through Index Funds
The investment fund landscape for retail investors broadly categorizes into actively managed and passively managed funds. Passive funds, commonly known as index funds, aim to mirror the performance of specific market indexes. Historically, data suggests that these funds have generally outperformed actively managed funds over the long term, where fund managers individually select stocks.
Many index fund investors can expect to gain exposure to SpaceX within days or weeks after its public debut. The precise timeline is contingent on the inclusion criteria set by individual index providers, with durations ranging from a few days to over a year.
For instance, indexes managed by Russell U.S. can incorporate mega-cap companies like SpaceX into their benchmarks after just five trading days, according to Evens. Similar timelines are observed for indexes from FTSE, CRSP, and MSCI, as detailed by Vanguard Group.
This means that investors holding shares in index mutual funds or ETFs tracking indexes such as the Russell 1000 or the CRSP U.S. Total Stock Market Index will automatically gain a stake in SpaceX following this initial five-day trading period. It’s worth noting that Morningstar is the owner of CRSP Market Indexes. Examples of such funds include the iShares Russell 1000 ETF (IWB) and the Vanguard Total Stock Market ETF (VTI).
An article by London Stock Exchange Group, the owner of the FTSE and Russell indexes, suggests that the inclusion of new companies after the fifth trading day, rather than immediately upon listing, can help mitigate immediate post-IPO share price volatility.
Other index providers operate with slightly extended timelines. MSCI, for example, adheres to a 10-day inclusion period. Nasdaq, on the other hand, adds a stock to its Nasdaq 100 index 15 trading days after its IPO, provided it ranks among the top 40 constituents. For companies not meeting this threshold, the inclusion period can extend to approximately three months.
Recognizing the significance of mega-IPOs, several index providers, including Nasdaq and FTSE Russell, have revised their inclusion policies this year to expedite the integration of these large offerings into their respective indexes. Charles Schwab notes that historically, most indexes required new listings to “season” for several months post-public entry to demonstrate their investability before inclusion. Accelerating this process allows indexes to more accurately reflect the broader U.S. stock market and minimize performance deviations, according to LSEG.
However, these accelerated inclusion policies have drawn scrutiny. Senator Elizabeth Warren, D-Mass., has publicly questioned these fast-track methodologies, raising concerns about investor protection. She noted that these changes, particularly following reports of SpaceX lobbying for quicker index entry, could result in millions of Americans invested in index funds automatically acquiring billions of dollars in SpaceX stock without their direct consent.
### SpaceX and Your 401(k)
Retirement savers, through their 401(k) plans, may also gain indirect access to SpaceX. Data from the Plan Sponsor Council of America indicates that approximately 86% of 401(k) plans offered a U.S. stock index fund in 2025, providing a potential pathway for exposure.
### The Extended Wait for SpaceX in the S&P 500
For investors tracking the S&P 500, one of the most widely followed stock indexes, inclusion of SpaceX may take several years. S&P Dow Jones, the index provider, mandates that companies must be publicly traded for at least 12 months before becoming eligible for the S&P 500. Furthermore, the company must demonstrate profitability, with positive earnings reported for the most recent quarter and cumulatively over the past four quarters.
Jay Ritter, director of The IPO Initiative at the University of Florida, points to Tesla (TSLA) as a precedent, noting it took approximately 10 years for the electric vehicle maker to be added to the S&P 500 after its IPO. Ritter anticipates that SpaceX‘s profitability requirements will likely delay its inclusion for a number of years.
It’s important to distinguish this from other S&P indexes; for instance, the S&P Total Market Index can incorporate SpaceX after just five trading days, according to Vanguard.
Ultimately, SpaceX‘s weighting within broad index funds and ETFs is expected to be relatively modest initially. For example, it might represent approximately 0.1% of the Vanguard Total Stock Market fund and around 0.6% of the Invesco QQQ ETF, which tracks the Nasdaq 100. These weightings can naturally increase over time as initial investors, founders, and employees divest shares in the months following an IPO.
### Accessing SpaceX Through Active Funds
Investors in actively managed mutual funds and ETFs can gain exposure to SpaceX and other significant IPOs without the extended waiting periods. Some of these funds have already established substantial pre-IPO positions that significantly outweigh those held by index funds.
According to Morningstar data as of June 1, eight active funds—including mutual funds, ETFs, and closed-end funds—held positions in SpaceX exceeding 10% of their net asset value. Among these, the Baron Partners Fund displayed the largest exposure, with SpaceX accounting for 37% of its assets.
However, Jeffrey Ptak, managing director for Morningstar Research Services, cautions that as these funds gain popularity, an influx of new assets could dilute the SpaceX weighting, potentially diminishing the very performance contribution investors are seeking. Furthermore, investors in active funds with large SpaceX holdings are more exposed to significant stock price fluctuations. Active funds also typically carry higher fees than index funds, contributing to the long-term outperformance of the latter.
### The Risks of Direct IPO Investment
The most direct and cost-effective method to acquire SpaceX shares would be to purchase them on an exchange following their Friday listing. However, investing in individual stocks generally entails greater financial risk compared to diversified securities, with these risks amplified during an IPO’s initial phase.
Ritter suggests that historical precedent indicates the most probable outcome for the SpaceX IPO is an initial surge on the first day, followed by underperformance relative to the broader market over the subsequent one to three years. While any stock offers the potential for substantial returns, the probability of losing money on an individual security is statistically higher than that of gaining, akin to a form of speculation. Given SpaceX‘s already high valuation, Ritter believes the likelihood of a truly significant gain is diminished.
Conversely, holding individual stocks can offer advantages, such as the ability to engage in “tax-loss harvesting.” Investors experiencing losses can sell those holdings to offset capital gains taxes on profitable investments. This tax-optimization strategy can be a compelling reason for tax-savvy investors to consider individual stock ownership over funds.
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