SpaceX is set to go public on Friday, June 12, in what is expected to be the largest initial public offering (IPO) in history.
The company, founded by Elon Musk, is valued at around $1.77 trillion, which would instantly place it among the six most valuable companies in the world — and, sooner or later, into the widely held index funds (ETFs), where many investors put their savings.
Some experts see a risk here: SpaceX recorded revenue of only around $19 billion last year, while posting a loss of around $5 billion.
By comparison, Meta, the parent company of Facebook, which is valued at roughly half a trillion dollars less, generated more than $200 billion in revenue last year with a profit of more than $80 billion.
The SpaceX valuation is therefore more of a bet on the future, based on the predicted potential of satellite connectivity and artificial intelligence — sectors in which SpaceX is active through its subsidiaries. But what does this uncertainty mean for ETF savers?
Limited impact on global ETF prices
Finance specialist and consumer protection advocate Ralf Scherfling sees the effects of the IPO on ETF investors as manageable. Even if SpaceX is included in the large and broadly diversified MSCI World Index — which tracks around 1,400 companies and serves as the benchmark for many popular ETFs — the weighting of SpaceX shares would be marginal.
Because only a small proportion of the shares will initially be freely tradeable, their weighting in major global indices may not even reach 0.1%, financial experts have estimated. The impact of SpaceX's success or failure would therefore barely affect the prices of popular global ETFs.
For other ETFs with a narrower focus, such as some sector-specific ETFs, SpaceX could carry greater significance, Scherfling forecasts. Investors who hold individual shares are directly and immediately exposed to the performance of the space company — something Scherfling advises against, particularly for inexperienced private investors.
A reason for a regular portfolio review
"The best protection is and remains a broad diversification of one's own investments," says Scherfling. Global ETFs remain a good option for this, as they invest across sectors and countries, giving investors exposure to shares in numerous companies with every euro invested.
They are also cost-effective, since ETFs replicate global indices automatically and no expensive fund management fees need to be paid.
"Events such as the SpaceX IPO can, however, serve as a prompt to check whether one's own portfolio still matches individual goals and preferences," Scherfling says.
Does the weighting of your portfolio, and its associated risks and opportunities, still reflect your individual investor profile? If not, rebalancing may be appropriate. It's good to reassess and ask this question roughly once a year.
Good to know:
- After an IPO, it can regularly take many months before a company's shares appear in indices — and therefore in ETFs — Scherfling says.
- Under the so-called fast-entry procedure, however, inclusion can happen within the first two weeks after the IPO.
- In the case of SpaceX, at least three major stock index providers — Nasdaq, FTSE Russell and MSCI — have made provisions to be able to include the stock in their indices more quickly than usual.
