Last week’s market debut for SpaceX has put index providers under the spotlight as they reconcile two competing aims: follow predetermined inclusion criteria or alter those rules to capture fast-evolving market conditions. The choices index managers make affect the composition and risk profile of funds designed to track those benchmarks, prompting advisers and asset managers to reassess passive strategies that have often been presented as uniform solutions.
"The IPO is the headline, but the real story is about index methodology," said Dina Ting, head of global index portfolio management at Franklin Templeton. She warned that investors should examine which index they are buying because that decision determines the actual holdings and risk exposure in their portfolios.
Two contrasting approaches by major index providers have already emerged following SpaceX’s listing. Nasdaq moved quickly to change its rules and add SpaceX to the Nasdaq 100 soon after the IPO, signaling a willingness to incorporate high-profile, high-growth listings within a compressed timeframe. By contrast, S&P Dow Jones Indices decided not to immediately include SpaceX in the S&P 500, choosing to adhere to its established process.
Those divergent actions are likely to reinforce perceptions of the Nasdaq 100 as the index of choice for investors prepared to accept larger price swings in search of outsized gains, while the S&P 500 remains aligned with a more measured inclusion approach.
"You’re going to get very different experiences because all of the indexes made a bunch of active decisions about which stocks to include, when to include them, how much weight to give them," said Joel Schneider, deputy head of portfolio management at Dimensional Fund Advisors. Schneider added that the wave of mega-IPOs is prompting advisers and investors to pay closer attention to index construction choices and their consequences.
SpaceX had sought to accelerate its admission into major benchmarks before listing, targeting both the S&P 500 and the Nasdaq 100. Investors commonly obtain benchmark exposure through mutual funds and exchange-traded funds that aim to replicate index performance, such as the Invesco QQQ ETF for the Nasdaq 100 and the State Street SPDR S&P 500 ETF for the S&P 500.
Eric Kuby, chief investment officer at North Star Investment Management Corp., said aggressive investors have been shifting toward QQQ-style exposure rather than SPY-type exposure, and that different index provider decisions will likely accelerate that trend.
By changing its rules to enable a rapid inclusion of SpaceX within a month of its listing, Nasdaq reasserted an orientation toward fast-growing firms that may not have long track records of profitability. If other large private machine-learning and AI-related companies such as Anthropic and OpenAI list on Nasdaq, that pattern could widen valuation gaps across U.S. markets.
Index inclusion has material consequences for fund flows and holdings. Had the S&P 500 changed its rules to admit SpaceX immediately, funds tracking that benchmark - many of them with assets measured in the trillions - would have been required to acquire shares. The three largest ETFs tracking the S&P 500, offered by Vanguard, Invesco and State Street, account for $3.2 trillion in assets under management. By comparison, the largest Nasdaq 100 funds hold around $600 billion.
S&P’s choice not to fast-track SpaceX leaves a pathway for returns generated by major indexes to diverge further, potentially increasing the difference in outcomes for investors depending on which benchmark they track. That divergence creates a trade-off for investors drawn to the high-profile, AI-related listings yet wary of the risk inherent in IPOs with valuations in the trillion-dollar range.
"In general, if you’re sort of more risk-on, if you would, then obviously the QQQ has the ability to include companies that are not profitable," said King Lip, chief strategist at BakerAvenue Wealth Management in San Francisco. "Risk-off market, you’re going to have the S&P probably going to do better from an overall perspective."
Academic and market research add nuance to the debate. Schneider cited a study published this month in the Review of Asset Pricing Studies showing that IPOs fast-tracked into indexes outperform their peers by roughly 5 percentage points through the date of index inclusion, but tend to give back more than half of those gains within two weeks of being added. That dynamic underscores the short-term trading and volatility often associated with expedited inclusions.
Even without immediate inclusion of these high-profile IPOs, funds tied to the S&P 500 still maintain significant exposure to technology companies and AI-related themes that have driven recent market gains. That exposure means S&P-linked funds are not immune to the risks associated with concentrated technology and AI bets.
Short-seller Jim Chanos warned that the early inclusion of such companies could leave passive investors with riskier portfolios than in the past. He criticized the SpaceX offering as driven by "hopes and dreams" rather than fundamentals, suggesting that broader equity allocations have become riskier amid an AI-driven rally.
The practical result for investors is that index selection - and the attendant fund choice - matters more than ever. Decisions about which benchmarks to track now implicitly include judgments about volatility tolerance and exposure to high-valuation growth names that may or may not sustain their early performance.
Questions about valuation are already front and center. The market has shown appetite for the SpaceX listing, as reflected in its price moves, prompting some market participants to ask whether SPCX is fairly valued. One commonly cited approach to assessing valuation is to use a fair-value framework that compares companies across multiple models and scenarios. Market participants point to such tools as ways to evaluate whether a high-profile IPO represents an attractive entry point or a speculative bet.
As more large private companies pursue public listings, index providers will continue to face the same fundamental tension: preserve rule-based objectivity or adapt rules to reflect evolving market composition. For investors and advisers, the choice of index and its methodology will increasingly determine how much of the volatility and concentrated exposure inherent in these mega-IPOs flows into their portfolios.