SpaceX, Mega IPOs and What They Mean for Investors

Recent months have seen a surge in interest regarding the initial public offering (IPO) of SpaceX, alongside other large prospective listings such as OpenAI and Anthropic. These will be among the largest and most high-profile public offerings in history, and it is entirely reasonable for investors to ask how they might be affected.

This note aims to provide clarity, separating what is changing structurally in markets, what it may mean for investors, and how a systematic investment approach have built in mechanisms that address these developments.

1. The Changing Dynamics of IPOs

Large IPOs have always drawn attention, but several features of the current environment are worth noting.

Highly forward-looking valuations

Companies such as SpaceX are being valued at levels that cannot be justified by current earnings alone. Rather, valuations reflect expectations of substantial future growth, the successful commercialisation of emerging technologies (including some that are yet to exist) and expansion into new and very large markets.

This does not mean necessarily that those outcomes will not occur, but it does mean valuations are speculative and highly sensitive to assumptions about the future verses how reality plays out.

Faster inclusion into indices

A key structural change that has grabbed the headlines is that many indices, such as the Nasdaq 100, MSCI, FTSE Global Equity and Russell US Equity indexes, have recently changed their rules for inclusion in light of the upcoming mega IPOs. This is likely to increase speed at which newly listed companies can be included in major indices after their IPO.

This is especially notable as it means that passive funds that track the indices in question will effectively be ‘forced’ into buying these stocks. It is estimated that 44% of the world’s assets under management are invested in passive funds compared to just 25% a decade ago[1], meaning the inflows into companies that are newly included in popular indexes will potentially be huge.

• In some cases, index inclusion may now occur within days or weeks of listing, rather than after several months or even years. Russell 1000 inclusion is expected approximately five trading days after listing.
• This allows index funds to gain exposure more quickly but also means they may do so while price discovery is still ongoing. In other words, index funds may buy up shares before the market has decided on a ‘fair’ price for previously unlisted companies.
• SpaceX has also gained attention due to only offering around 7% of its shares to the market, although the amount available to the market will likely increase once early investors begin to cash out. This, combined with just how much investors money is in passive funds as a proportion of the market, will likely result in huge initial demand from index funds for the small proportion of shares available once inclusion into indexes such as the NASDAQ-100 and FTSE Russell happens, likely in early July.

This is likely to greatly increase price distortion for investors and could mean index funds greatly overpay for these shares.

To counterbalance, there are points about SpaceX that are not being adequately covered by the mainstream media:

1. Although many indexes are relaxing their rules for inclusion for large IPOs, they also have made provisions for when companies float a very small proportion of their shares. For instance, NASDAQ and CRSP indexes will utilise a ‘float adjusted market-cap’. In other words, inclusion in the index will be weighted according to the company’s publicly available shares, rather than total market cap. This would mean that, despite SpaceX’s initial valuation of around $1.8Tn, the indexes will treat the company as if it were only a fraction of this value rather than the 6^th biggest company in the world.
2. The S&P500 have not relaxed their listing rules, meaning SpaceX and the other mega IPOs on the horizon will not be included until they can demonstrate a track record of profitability. This is significant as this is one of the most popular indexes with retail investors. This will potentially reduce the price distortion investors may experience.

2. IPOs – the Passive vs Systematic approach

Passive index funds are designed to track markets, by holding shares in proportion to the index they are tracking. They will buy therefore shares when required by index rules regardless of the price at the time.

What this means in practice

It is possible that large IPOs with:

• limited initial supply of shares,
• strong investor demand,
• and rapid index inclusion,

could experience periods where prices are influenced much more by structural demand than underlying fundamentals. For long-term investors, the key point is not whether this occurs, it often does in some form. However, what is worth considering is whether portfolios will automatically buy at precisely at moments which are likely to be disadvantageous.

For a growing number of investors, index investing is considered the most disciplined and rules-based way to access markets. In reality, there are meaningful differences between index-tracking and systematic investing.

What is systematic investing?

Systematic investing forms a core part of the portfolios we recommend to clients. Systematic funds share many of the same principles as passive investing. Funds from both philosophies are designed to be held for the longer-term and are focussed on capturing the returns of the market by investing broadly rather than based on speculation or projections.

However, systematic investing differs to investing via an index fund in ways that make it much less susceptible to the risks presented by the modern climate of mega IPOs.

Systematic investing targets higher returns by:

• Focusing on broad, empirically supported drivers of return, for instance, over the long run, company size, relative price, and profitability have been shown to affect returns.
• Diversification beyond the largest companies; rather than tracking an index, and concentrating capital in the largest companies, systematic strategies typically attempt to capture returns from the whole market, maintaining broader exposure and investing more in smaller companies with good fundamentals.
• Allowing flexibility in trading, meaning funds are not forced to buy at a particular point as index funds are, helping investors avoid the costs associated with demanding immediacy. Research has shown that after an initial period of high volatility, IPOs tend to underperform the market in the first year, their systematic approach allows them to invest accordingly.

To give one example of how a systematic approach differs from an index approach in the context of SpaceX, it’s initial valuation at time of IPO was close to $1.8Tn. This commands a price-to-sales (P/S) ratio of 96[2]. Companies at the forefront of game-changing technologies have consistently been unable to sustain P/S ratios above 30.

An ultra-high valuation compared to earnings works well for SpaceX being included in index funds, but the low free float market cap determines how much of a stock index funds will hold. However, in a systematic fund, an ultra-high price to earnings ratio would count against it, as would unprofitability.

3. Putting It All Together

The upcoming wave of large IPOs is notable, but it does not alter the core principles of successful long-term investing.

It does, however, highlight an important point:

• Index funds will, by design, allocate capital based on rules that do not consider fundamentals or timing, only market cap counts.
• Systematic strategies aim to capture market returns more thoughtfully, with greater flexibility and attention to implementation.

4. For clients invested in diversified, systematic portfolios:

• exposure to large IPOs may occur, but likely not as much as in an index fund as tilting towards smaller, value and more profitable companies will count against huge yet unprofitable companies
• Any exposure it will typically be measured, diversified, and not accumulated at a single point in time.

This helps to:

• Reduce reliance on any individual company outcome,
• Avoid being overly exposed to the specific dynamics surrounding major listings,
• Reduce frictional trading costs and unfavourable pricing by buying and selling little and often rather than the quarterly or biannual rebalancing typical to most trackers.

Conclusion

Large IPOs such as SpaceX, OpenAI, and Anthropic are likely to play a significant role in markets over the coming years. Their scale, ambition, and visibility make them notable, but also introduce uncertainty, particularly around valuation and early trading dynamics.

Rather than attempting to anticipate the success or failure of any individual company, a systematic investment approach:

• Provides disciplined exposure to markets.
• Avoids reliance on short-term flows.
• Focuses on long-term drivers of return.

This remains, in our view, the most robust way to navigate periods of heightened market attention and change.

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[1] YearEnd2025_The-Passive-vs-Active-Fund-Monitor_en.pdf

[2] SpaceX Just Lowered Its IPO Valuation Target by $200 Billion

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