With the SpaceX IPO Reshaping the Nasdaq, Is QQQ Still a Smart Investment Right Now?
Key Points
The Invesco QQQ Trust will begin buying SpaceX shares starting July 7, when the space company joins the Nasdaq-100.
SpaceX will most likely enter the ETF with a weight of less than 1% due to its tiny float.
The inclusion of SpaceX isn't a reason to change your approach if you invest in the Invesco QQQ Trust.
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In a controversial move, Nasdaq changed its eligibility rules for the Nasdaq-100 index, allowing Space Exploration Technologies (NASDAQ: SPCX) to join without the traditional seasoning period. The space company will be added to the index 15 trading days after its IPO, on July 7.
This means one of the most popular tech exchange-traded funds (ETFs), the Invesco QQQ Trust (NASDAQ: QQQ), will soon invest in SpaceX. There's been quite a bit of concern from investors about such a volatile stock getting fast-tracked, so let's see how large the SpaceX position will really be and if this means you should choose another ETF.
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How much SpaceX will QQQ own?
Recent estimates put SpaceX's weight in the Nasdaq-100 at less than 1% when it joins the index. The Invesco QQQ Trust is a passive fund that tracks the Nasdaq-100, so its weighting will be the same.
Even though SpaceX is already one of the largest companies by market cap, Nasdaq also weights the Nasdaq-100 by free float. Since only about 4% of SpaceX shares are publicly traded, it won't start out as a top holding.
SpaceX's lockup period for insiders expires across multiple selling windows for the first six months after its IPO. As more shares hit the market, its weight in the Nasdaq-100 will change, but this will also depend on the company's market cap.
Is QQQ still a smart investment?
A sub-1% position doesn't make or break an index fund. The concern surrounding the Nasdaq's rule change is understandable, but SpaceX's early impact on the Invesco QQQ Trust will be modest. The fund's largest holdings, including Nvidia, Apple, and Micron Technology, will drive its returns.
SpaceX could become a larger holding as its float increases. But it's also possible that the company's share price and market cap drop when insiders are permitted to sell, in which case SpaceX could wind up with about the same weight in the Invesco QQQ Trust.
If you'd rather not invest in the Invesco QQQ Trust due to its SpaceX exposure, another option is the Vanguard Information Technology ETF (NYSEMKT: VGT). It tracks an index with only technology companies, and since SpaceX is in the industrials sector, it doesn't qualify. This Vanguard ETF is worth considering if you're mainly interested in a tech ETF. Just note that it's much more concentrated in its top holdings and is also more volatile.
That said, the Invesco QQQ Trust remains a great way to gain broad exposure to top tech stocks. The SpaceX inclusion is a small shift in its holdings, but if you liked this fund before, it's probably best to stay the course.
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Lyle Daly has positions in Invesco QQQ Trust, Nvidia, and Vanguard Information Technology ETF. The Motley Fool has positions in and recommends Apple, Micron Technology, and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
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