Even if you have zero interest in buying SpaceX when it goes public as early as June 12, its initial public offering (IPO) is highly likely to affect your portfolio.
About 156 million U.S. adults own stocks. And a lot of that wealth is in S&P 500 index funds, mutual funds, and market-cap weighted growth-focused exchange-traded funds (ETFs) that could soon own SpaceX.
Investors looking for a scoop of SpaceX rather than a sprinkle have come to the right place. Out of Vanguard’s 56 low-cost equity-focused ETFs, the Vanguard Communication Services ETF (NYSEMKT: VOX) will likely hold (by far) the highest percentage of SpaceX stock.
Image source: Getty Images.
The SpaceX IPO is a market-altering event
SpaceX is raising $75 billion at a valuation of around $1.75 trillion — making it the largest IPO in history. The S&P 500 and Nasdaq-100 (the largest 100 non-financial companies on the Nasdaq Composite) are paving the way for fast-track entry for mega-cap growth stocks like SpaceX, Anthropic, and OpenAI, potentially weeks after they go public.
The fast-track entry will allow these behemoth companies to bypass the traditional seasoning period, during which newly public companies are assessed against core principles. The issue with the seasoning period is that it effectively creates a lag, so a newly listed company can post monster gains that index fund investors miss out on. And then, the company is added to the index at a higher price. This is exactly what happened with Tesla (TSLA 6.43%), which went public in 2010 but wasn’t added to the S&P 500 until December 2020, when it had a market cap in the hundreds of billions.
However, valuing SpaceX at $1.75 trillion right off the bat would effectively break index funds and passively managed market-cap-weighted ETFs, because the float of $75 billion would be simply too small for funds to properly weight SpaceX as a top holding. Therefore, the S&P 500 and Nasdaq-100 will most likely weight SpaceX based on three to five times the value of the shares available to the public to trade, known as the float, rather than its market cap. And as insiders sell SpaceX shares, the float will increase, and so will SpaceX’s weight.
Even if SpaceX were weighted by market cap at $1.75 trillion, it would account for only a little over 2% of the S&P 500. That could still be a meaningful stake for investors with the bulk of their hard-earned savings in an S&P 500 index fund. But investors looking for outsize SpaceX exposure through a low-cost ETF should instead consider the Vanguard Communication Services ETF.
NYSEMKT: VOX
Vanguard World Fund – Vanguard Communication Services ETF
Today’s Change
Current Price
Preparing the communications sector for liftoff
The sector-based ETF invests in the largest communication sector stocks. And although it remains to be seen which of the 11 Global Industry Classification Standard (GICS) sectors SpaceX joins, I think communications will be the obvious choice, given that SpaceX makes the bulk of its revenue from its Starlink network of low-Earth-orbit satellites and owns the social media platform X (formerly Twitter).
If SpaceX joins the communications sector at three to five times its $75 billion float, it would have a valuation weighting of $225 billion to $375 billion, which would put it ahead of Verizon Communications (VZ +1.15%) but likely behind Netflix (NFLX +0.90%) for the fourth spot in the Vanguard Communication Services ETF. However, SpaceX will allow insiders to sell some of their holdings well before the usual 180-day lockup period. As my colleague Bram Berkowitz outlines, additional sales could take place at least five to 10 trading dates after the IPO, as well as 70, 90, 105, 120, and 135 days after the IPO.
That should give SpaceX enough time to be market-cap weighted rather than float weighted by the end of 2026. And if that were to happen, and SpaceX were to join the communications sector and retain its lofty $1.75 trillion valuation, it could make up around 19% of the Vanguard Communications Sector ETF.
That’s a lot of “what ifs.” But the point is that as long as SpaceX gets added to the communications sector, and it doesn’t crash after its IPO, it will very quickly become a top-three holding in the communications sector alongside Meta Platforms (META 5.50%) and Alphabet (GOOGL 0.82%) (NASDAQ: GOOG).
Add it all up, and the Vanguard Communication Services ETF is an intriguing buy for investors seeking outsize exposure to SpaceX through an ETF wrapper.
