SpaceX IPO Situation is Crazy

There are two things people keep asking me about the SpaceX IPO. Will it get added to their index funds and if given the opportunity should they invest directly in the IPO? Many of the major indices have made changes to their rules recently and it has a lot of people confused but what's actually going to

happen when SpaceX goes public. If keeping up with all these changes has you a little confused about what this all could mean for your portfolio, this video is for you. I'm Ben Felix, Chief Investment Officer at PWL Capital and I'm going to tell you which index funds will be buying SpaceX and when and why

SpaceX really wants you to invest in their IPO.

The SpaceX IPO is expected to be by far the largest IPO in history measured by the amount of capital the company raises and only Saudi Aramco comes close in terms of total market cap at the time of IPO. To pull this off the way that SpaceX wants to, the company needs to convince a lot of investors to buy its

shares. They've been pushing for two things. Rule changes that will allow near immediate inclusion in major stock market indices and heavy retail investor participation in the IPO. They've said they want to allocate around 30% to retail investors while a typical IPO allocates 5 to 10% to retail. The

company has been largely successful with these initiatives with many index providers changing their rules and retail brokerages promoting direct investment in the SpaceX IPO to their customers resulting in what looks like it will be an oversubscribed IPO meaning more people want to buy shares than

there are shares available. Let's go through each of these issues to understand the implications for you. One of the biggest stories in finance recently has been major indices changing their rules leading up to the SpaceX IPO and other large IPOs that are expected to follow. Every index needs rules for

how to deal with new companies entering the market through IPOs and market changes in general. This is not a new problem. Indices have rules to limit when new stocks can enter and to filter out stocks with certain characteristics.

For example, companies with a low free float, that's a low proportion of total shares that are freely available for trading, would often be excluded from indexes. Many indices also have or had something like a waiting period before new IPOs could get included. Stock market indices are supposed to be

rules-based representations of parts of the stock market or in some cases the whole stock market. nature has earned index funds, which simply track the stocks in an index, the title of passive. Passive makes it seem like there aren't any decisions that need to be made, but stock markets

themselves change and indices can change their rules, which calls into question how passive they really are. SpaceX really wants to get added to stock indices sooner than later, likely because index funds mechanically buy the stocks in the index, supporting the stock's price. Stocks that qualify for

immediate index inclusion following their IPO tend to see a jump in their price leading up to index inclusion. To be clear, index providers changing the rules is not a bad thing. It's not nefarious necessarily. The job of an index is to represent the stock market.