The SpaceX IPO Is Coming. This Is the Vanguard ETF It'll Probably Show Up In First.

The SpaceX initial public offering (IPO) will be the most highly anticipated event on Wall Street in years. Reports suggest that the stock could go public as early as this summer and value the company at around $2 trillion.

Investors in exchange-traded funds might naturally be wondering when SpaceX might appear in their funds. The honest answer is that it depends. There's really no hard-and-fast rule about how soon it can be added. For passively managed funds, the index construction methodology and reconstitution schedule dictate how quickly a stock can be added.

Investors might expect SpaceX to show up initially in the S&P 500. In reality, the Vanguard Total Stock Market ETF (NYSEMKT: VTI) could get it first. Here's why.

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It could take a year for SpaceX to show up in the S&P 500

Standard & Poor's has several requirements that stocks must meet to be eligible for inclusion in an index. For the S&P 500, they're as follows:

• Large market capitalization
• Must be profitable in the most recent quarter and over the past four quarters
• Twelve months of trading history on a large exchange
• Minimum liquidity and trading volume requirements

There are a few additional requirements, and only rare exceptions to these are allowed. If these rules applied to SpaceX in the strictest sense, the stock might not show up in the index until 2027. However, amid potential IPOs from SpaceX, OpenAI, and Anthropic, both Standard & Poor's and Nasdaq are discussing expediting the inclusion process for megacap IPOs.

VTI's index methodology allows SpaceX to be added right away

The Vanguard Total Stock Market ETF tracks the CRSP US Total Market Index. Under the index methodology rules, stocks must have at least 20 trading days of history before meeting the investability requirement. An exception is made, however, for "fast-track IPOs," which SpaceX would almost certainly qualify as. For those stocks, they can be added to indexes after just five trading days.

That means SpaceX shares could appear in the Vanguard Total Stock Market ETF as soon as a week after the IPO.

Other Vanguard ETFs that track CRSP indexes where SpaceX could conceivably show up:

• Vanguard Growth ETF
• Vanguard Mega Cap Growth ETF
• Vanguard Large Cap ETF
• Vanguard Mega Cap ETF

Index providers recognize that this coming wave of AI-related IPOs is unprecedented, and they're rewriting the rules to accommodate them. S&P and Nasdaq may yet allow SpaceX to be included immediately before the official IPO date. But the Vanguard Total Stock Market ETF is the largest fund in which the stock could show up in a matter of days.

David Dierking has positions in Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends S&P Global and Vanguard Growth ETF. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.