Elon Musk’s SpaceX is expected to imminently file for an initial public offering (IPO) valued at as much as $1.75 trillion, indicating it will be the largest IPO on record. The space company is rumored to be targeting a June listing date on the Nasdaq.
Due in large part to Musk’s Tesla returning a jaw-dropping 2,280% over the past decade, retail investors are excited about SpaceX going public. They’re getting a crack at up to 30% of the shares. That’s triple the usual IPO allocation for retail investors, confirming SpaceX is likely to be one of the hottest IPO stocks in recent memory for the non-professional crowd.
The IPO also has wide-ranging implications for some well-known exchange-traded funds (ETFs), including the Invesco QQQ ETF (QQQ +1.23%) and the Invesco NASDAQ 100 ETF (QQQM +1.11%). Here’s why.
The SpaceX IPO could mean a new look for these ETFs. Image source: Getty Images.
Make ’em an offer they can’t refuse
A quick housekeeping item. The two Invesco funds, which are among the best options for accessing the 100 largest non-financial services stocks trading on the Nasdaq, both track the Nasdaq-100 index. The primary difference between the two is that the Invesco QQQ ETF charges 0.18% annually, or $18 on a $10,000 stake, while its cousin charges 0.15%.
So the SpaceX IPO will affect the two ETFs in essentially the same fashion. Addressing those impacts is the fun. Here’s the lowdown. For “whale” IPOs such as SpaceX, there’s fierce competition between Nasdaq and the New York Stock Exchange (NYSE). Bragging rights and prestige are part of it, but ultimately it’s about boosting long-term trading revenue.
None of that is lost on Musk. The rumor mill indicates that SpaceX is considering a Nasdaq stock exchange listing, leveraging its lucrative IPO to compel the exchange operator to rapidly include the stock in the Nasdaq-100. But wait, how’s that possible? The index rebalances just once a year, in December.
Today’s Change
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It’s possible that SpaceX will quickly join the Nasdaq-100, and thus the two Invesco ETFs, as Nasdaq is mulling a “fast entry” rule change. The long and short of it is that if a company’s market capitalization puts it within the top 40 of Nasdaq-100 members after 15 trading days, it’s eligible for inclusion. SpaceX will fit that bill. For Musk and SpaceX investors, that’s relevant because if the stock is included in that gauge, all active managers and passive index funds that benchmark to it have to include it.
How SpaceX could look in Nasdaq ETFs
Determining SpaceX’s profile in the aforementioned Nasdaq ETFs is a speculative, albeit fun exercise, and it bears remembering that market values shift every second markets are open. With that said, let’s give it a whirl in terms of how this hot IPO could shake out in the Invesco ETFs.
Oddly enough, had SpaceX entered the Nasdaq-100 with a market capitalization of $1.75 trillion on Friday, March 27, it would have supplanted Tesla as the fifth-largest holding in the benchmark. The electric vehicle stock accounts for 3.8% of the Invesco ETFs.
So, assuming SpaceX proceeds with a Nasdaq listing and swiftly enters the Nasdaq-100, it’s apt to be a prominent, though not dominant, fixture in these ETFs initially.