How to get SpaceX stock without buying the IPO

SpaceX’s initial public offering on Friday is expected to be the largest in history and is generating a lot of buzz.

But financial experts say IPOs can be risky for the average investor.

First, stocks are often unprofitable in the early years after an IPO, experts say. And buying individual companies rather than investment funds with broadly diversified baskets of stocks can make that volatility more acute for unwary investors because the positions are concentrated.

However, there is good news too. Investors who want a piece of SpaceX don’t have to buy the stock outright.

There are plenty of mutual funds and exchange-traded funds that have positions in SpaceX, or will hold positions once the company goes public. They will hold stocks as part of a broader investment portfolio.

Experts say the same goes for other highly anticipated blockbuster IPOs scheduled for this year, including Anthropic and OpenAI.

“There may be ways for investors to access this stock other than buying the IPO,” said Zachary Evens, a passive strategies analyst at Morningstar.

At $135 per share, SpaceX would be worth nearly $1.8 trillion, making it the seventh largest company in the U.S. by market capitalization. With this IPO, CEO Elon Musk is expected to become the world’s first millionaire.

Investment funds for individual investors typically fall into two categories: actively managed and passively managed.

The latter are known as index funds and are designed to track the broad performance of the stock market through a specific market index. Data shows that over the long term, these funds generally outperform funds whose stocks are actively selected by asset managers.

Experts say many index fund investors will be able to access SpaceX within days or weeks after the IPO.

Timelines vary depending on the specific criteria established by the various index providers and can range from a few days to more than a year.

For example, the Russell US Index could see a supercap company like SpaceX added to the index after five days of trading, Evens said.

The same schedule applies to indexes offered by FTSE, CRSP and MSCI, Vanguard Group said.

What this means for investors is that anyone who owns shares in an index mutual fund or ETF that tracks an index such as the Russell 1000 or CRSP US Total Stock Market Index will own a portion of SpaceX after that five-day period, Evens said. Morningstar owns the CRSP Market Index.

Examples of such funds include the iShares Russell 1000 ETF (IWB) and Vanguard Total Stock Market ETF (VTI) said Evens.

An article by the London Stock Exchange Group, which owns the FTSE and Russell indexes, said: “Incorporating new entrants after the end of the fifth trading day, rather than immediately after listing, should help address stock price volatility immediately following an IPO.”

Other index providers have slightly longer schedules.

For example, MSCI has a 10-day timeline.

Nasdaq, like SpaceX, adds stocks to the Nasdaq 100 index 15 business days after an IPO if they are in the top 40 stocks. Otherwise, the schedule stretches to about three months.

Some index providers, including Nasdaq and FTSE Russell, have relaxed their inclusion policies this year to “speed up” the inclusion of mega-IPOs into their respective indexes.

“Indication methodologies vary, but historically, most new listings have required a few months of ‘seasoning’ after listing,” said Charles Schwab. “This period allows the stock time to demonstrate investment potential before being added to the index.”

According to LSEG, the accelerated timeline allows the index to more faithfully represent the overall U.S. stock market and minimize deviations from market performance.

Sen. Elizabeth Warren, D-Mass., released a letter Thursday to index providers questioning these fast-track policies.

“This wave of changes by your company raises serious investor protection concerns, especially amid reports that SpaceX lobbied for your company’s rapid entry into the index,” Warren wrote. “For the millions of Americans who invest in index funds, this change could lead to them automatically purchasing billions of dollars in SpaceX stock without any say.”

Meanwhile, investors in the S&P 500, perhaps the most well-known stock index, may have to wait years to see SpaceX join their ranks.

Provider S&P Dow Jones requires companies to be publicly traded for at least 12 months to be eligible for inclusion in the S&P 500. In addition, the company must be profitable, or have had positive revenue for the most recent quarter and the past four quarters combined, Evens said.

Tesla (TSLA) Especially after the IPO, it took about 10 years for it to be added to the S&P 500, Evens said.

“Therefore, SpaceX will not participate in the S&P 500 index, which by far is the index with the most amount of money indexed,” said Jay Ritter, director of the University of Florida’s IPO Initiative.

“For SpaceX, profitability requirements will likely keep them in the mix for several years,” Ritter said.

However, this schedule does not apply to all S&P indices. For example, the S&P Total Market Index could include SpaceX in five business days, according to Vanguard.

Ultimately, SpaceX will likely only make up a small portion of the total index mutual funds and ETFs, experts say.

For example, this corresponds to about 0.1% of the Vanguard Total Stock Market Fund and about 0.6% of Invesco. QQQ Ritter said it’s an ETF that tracks the Nasdaq 100.

Vanguard says these weightings may naturally increase over time as early investors, founders and employees sell additional shares in the months following the IPO.

Investors in actively managed mutual funds and ETFs can get their hands on SpaceX and some of this year’s other big IPOs without delay.

Some of these funds have established large pre-IPO positions comparable to index funds.

For example, as of June 1, eight active funds, including mutual funds, ETFs and closed-end funds, held positions in SpaceX greater than 10% of their net asset value, according to Morningstar data.

According to Morningstar, these funds, in descending order of exposure, are Baron Partners Fund, Baron Asset Fund, Baron Focused Growth Fund, Baron Global Opportunity Fund, The Private Shares Fund, Baron Opportunity Fund, ERShares Private-Public Crossover ETF, and Ark Venture Fund.

SpaceX accounted for 37% of Baron Partners mutual fund assets, according to Morningstar.

But as investors flock to these products, their holdings could be diluted, experts say.

“Paradoxically, as these[funds]become more popular with investors, the influx of assets could dilute SpaceX’s weight, thereby diluting its potential to contribute to performance in the first place,” Jeffrey Ptak, managing director of Morningstar’s Morningstar Research Service, wrote last week.

Of course, investors who own active funds in which SpaceX has large positions are more vulnerable to large swings in stock prices, experts say.

Active funds also tend to be more expensive than index funds, which is one reason index funds tend to outperform actively managed funds over the long term, they said.

Evens said the “cheapest and most direct” way to buy SpaceX would be to buy shares on the exchange after Friday’s listing.

But buying individual stocks generally involves greater financial risk than buying a diversified basket of securities, and that risk increases in the early days of an IPO, Ritter said.

Citing historical precedent, Ritter said, “The most likely outcome of a SpaceX IPO is a spike on day one and probably underperforming the market for the next year and the next three years.”

With any stock, there’s always a chance for big gains, but the probability of losing money on an individual security is higher than the probability of making a profit, Ritter said. It’s like gambling, he said.

What’s more, SpaceX’s valuation is already so high that “in my opinion, there’s no real chance of a significant return,” he said.

There can also be benefits to owning a single stock.

Investors who lose money during volatility can sell their holdings and use those losses to offset capital gains taxes on winning investments, a strategy called “tax loss harvesting.”

“Being able to recover tax losses and reward winners is one of the reasons tax-savvy investors actually want to own individual stocks rather than funds,” Ritter said.