Investors dump ETFs and buy rivals as SpaceX joins major indexes

SpaceX went public on June 12 with an approximate valuation of $1.8 trillion. Shares opened around $150 and climbed sharply from there.

The company’s rapid inclusion into the Nasdaq 100, effective July 7, and the Russell 1000 around June 27, means that passive investors suddenly own SpaceX whether they wanted to or not.

The great rebalance

When a company joins a major index, every ETF and index fund tracking that benchmark must buy shares to maintain proper weighting. Funds like the Invesco QQQ, which tracks the Nasdaq 100, and the Vanguard Total Stock Market ETF are now obligated to hold SpaceX.

A Danish pension fund has already blacklisted SpaceX over governance and valuation concerns. Several US and global index holders are reportedly exploring alternatives to dodge exposure to the stock entirely. Some are selling out of Nasdaq-tracking ETFs and rotating into S&P 500 trackers, which remain SpaceX-free. Others are moving capital overseas into international funds.

Why the S&P 500 matters more than usual

S&P Dow Jones Indices has maintained its stringent eligibility requirements and confirmed that SpaceX won’t join the S&P 500 for at least a year, with the earliest possible inclusion coming in June 2027. That decision has turned SPY and VOO into something of a safe harbor for investors who want broad US equity exposure without SpaceX.

The Nasdaq 100 and Russell 1000 now include SpaceX. The S&P 500 does not. That gap is driving real capital flows between products that, until recently, were largely interchangeable for most retail investors.

The Musk factor and governance concerns

A $1.8 trillion debut puts SpaceX in the same neighborhood as the largest companies on earth, despite having just hours of public market trading history at the time of its index inclusion. The Danish pension fund’s blacklisting is the most visible example of governance-driven resistance, with concerns around concentrated leadership risk and political polarization around Musk’s various enterprises also contributing to the pushback.

This dynamic echoes what happened with Tesla’s addition to the S&P 500 back in December 2020, when passive funds were forced to absorb a stock that many active managers considered dramatically overvalued. SpaceX’s IPO valuation dwarfs Tesla’s market cap at the time of its index inclusion, and the speed of the Nasdaq and Russell additions — weeks rather than months — left less time for the market to digest.

A surge of new and leveraged SpaceX-related ETFs launched almost immediately after the IPO. Mixed performance on debut day across ETFs tracked by Invesco QQQ, VTI, ITOT, and ARKK suggests the market hasn’t reached consensus on what SpaceX is actually worth as a public company.

What this means for investors

Anyone holding a total market fund or Nasdaq tracker now has significant SpaceX exposure, and at a $1.8 trillion valuation, that weighting is not trivial. The S&P 500’s one-year waiting period creates a clean dividing line between index products that include SpaceX and those that don’t, with the earliest possible S&P inclusion in June 2027.

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