SpaceX Has Joined the Nasdaq-100. Here's What That Means for Index Investors
Key Points
SpaceX was added to the Nasdaq-100 on July 7 after the index changed its rules to include the IPO.
Initially, it will make up less than 1% of the Nasdaq-100.
As SpaceX's lockups expire, it will likely represent more of the Nasdaq-100.
- 10 stocks we like better than Space Exploration Technologies ›
Space Exploration Technologies (NASDAQ:SPCX) has already set several records in just a few weeks as a publicly traded company.
It was the largest IPO ever, raising roughly $75 billion in its offering, and it was also the most valuable listing ever, valued at $1.75 trillion based on the listing price. It opened at more than $1.9 trillion before soaring to nearly $3 trillion briefly two sessions later.
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Now, SpaceX is setting another first. It will be the fastest company ever to join the Nasdaq-100, which modified its rules to allow Elon Musk’s space company to join the vaunted index, accepting SpaceX today, less than a month after it went public.
The Invesco QQQ Trust (NASDAQ:QQQ), which tracks the Nasdaq-100, is one of the largest ETFs in the world with net assets of $490.1 billion. Like the index, the ETF tracks the top 100 non-financial Nasdaq stocks, and that now includes SpaceX.
Image source: SpaceX.
How SpaceX will impact the Nasdaq-100
Unlike the S&P 500, which uses a straight market-cap weighting methodology, the Nasdaq-100 uses a modified market-cap weighting one, which takes a company’s float into account. The fund is allocated based on the number of publicly available shares, which makes sense since those are the only shares the ETF can buy.
Currently, only a small percentage of SpaceX stock, less than 5% of shares outstanding, is publicly traded, which means that the space stock makes up less than 1% of the Nasdaq-100 index. However, that will change over time as the company’s staggered lockup periods expire over the next year, allowing investors to sell their shares.
After a year, SpaceX could make up a significantly larger percentage of the Nasdaq-100 if insiders sell their stock and the share price goes up.
What it means for investors
Nasdaq-100 ETFs like the QQQ are popular and have a strong track record of outperforming the S&P 500 since the dot-com era.
If you own the Invesco QQQ Trust or another Nasdaq-100 ETF like the recently launched State Street SPDR Portfolio Nasdaq-100 ETF (NASDAQ:QNDX), you should be mindful of SpaceX’s inclusion; however, with an allocation of less than 1%, it’s unlikely to have a significant impact on the ETF.
Still, since you now own SpaceX through the ETF, you may be less interested in buying the stock directly.
Similarly, SpaceX’s inclusion in the Nasdaq-100 is unlikely to affect the stock. Index inclusion is a net positive as it forces ETFs to buy the stock, but only $4.3 billion in passive buying was expected for SpaceX as it joins the Nasdaq-100, which is unlikely to move the stock, as it represents just about 0.2% of the stock.
Overall, SpaceX’s addition to the Nasdaq-100 won’t have a significant effect on QQQ or your portfolio, at least for now, but it's worth paying attention to what SpaceX does in the next year, both with its performance and its float, as its impact on the Nasdaq-100 is likely to grow over time.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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