SpaceX is poised to enter the Nasdaq 100 index on Tuesday, following a positive debut week in the Russell 1000, where its stock increased by 5.7%. However, historical trends indicate that investors should proceed with caution.
Index Inclusion and Initial Performance
After its initial public offering, SpaceX faced a notable drop of 24% from its peak closing price of $201.80. The company was welcomed into the Russell 1000, allowing it to recover some of those losses. As it transitions to the Nasdaq 100, billions in passive fund buying are expected, as funds tracking the Nasdaq must acquire SpaceX shares at the closing price on Monday.
The cumulative assets managed by Nasdaq 100-tracking funds are estimated at $800 billion, with the Invesco QQQ ETF leading these investments. Despite the significant market cap of $2.1 trillion for SpaceX, the company only floated about 5% of its shares during its IPO, leading to a calculation that reduces its initial index weight to under 1%, akin to a firm worth approximately $300 billion.
Recent Patterns and Market Response
Historically, the performance of new Nasdaq 100 entrants has been mixed. Out of the last 21 companies that joined the index in the past two years, only six saw price increases in their first week, while the average decline was 3.8%. A significant number of recent entrants, including CoreWeave and Rocket Lab, experienced losses exceeding 15% during their opening week.
There is a slight silver lining, as further analysis shows that the average one-month return for new entrants often reflects a gain of 3.6%, escalating to 6.3% at the three-month mark.
Impact on Active Funds and Fee Competition
The entry of SpaceX into the Nasdaq 100 is also spotlighting competition among ETFs tracking the index, which charge varying fees. QQQ, among the most prominent, has an annual fee of 0.18%, while State Street's recently launched SPDR Portfolio Nasdaq 100 fund offers a lower rate of 0.10%. Invesco also has the QQQM, which charges 0.15%, with a new BlackRock product on the horizon.
Earlier this year, SpaceX advisors reached out to index providers seeking quicker inclusion under updated rules aimed at facilitating the entrance of large-cap companies. This strategy aims to leverage the growing trend of passive fund inflows, ensuring consistent demand in the market.
As the lockup periods conclude over the coming year, experts project that index funds will absorb some of the stocks being sold by employees, thereby supporting SpaceX's market price amid potential volatility.
