High hopes for SpaceX as its lands on Nasdaq 100
SpaceX has joined the Nasdaq 100, meaning passive funds that track the index will now automatically hold positions in the company, which listed on 12 June.
SpaceX (NASDAQ:SPCX) joined the index today (7 July), a week after it was added to the Russell 1000 Index (29 June).
Bloomberg reported SpaceX could look forward to an estimated $5.4 billion of inflows as a result of ‘forced’ buying by index funds that track these two indices.
Sign up to Money Morning
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Elon Musk’s space exploration company was fast-tracked for inclusion following rule changes by the index providers, put in place to reflect the unprecedented size of some initial public offerings (IPOs) coming to market.
Nasdaq’s new rules now allow freshly listed companies to be included in as few as 15 trading days, rather than its previous minimum period of three months after an IPO.
What will SpaceX index inclusion mean for flows?
Nasdaq says globally, there is around $1.4 trillion in assets tracking its component companies’ combined market capitalisation (market cap) of $31.5 trillion, around half of which do so through exchange-traded funds (ETFs). The other half is in derivative products, such as futures and options.
The Nasdaq 100 index represents the largest 100 companies, excluding financials, listed on the Nasdaq Stock Market. Often described as a tech-focused index, it contains all ‘Magnificent 7’ names – Alphabet, Amazon, Apple, Tesla, Meta, Microsoft and Nvidia. But it also contains many other companies with a value of $100 billion or more from healthcare, industrials and materials, for example, with representation across 10 of the 11 standard industry classification sectors.
When a stock joins an index like the Nasdaq 100, funds tracking that index are effectively forced to buy its shares so that they still reflect the index. This creates additional demand for a stock and could push up its share price.
The UCITS version of Invesco’s Nasdaq-100 ETF (LON:EQQQ) is the largest Nasdaq-tracking ETF available to UK investors. Barclays Smart Investor platform lists it as the seventh most popular purchase during the week of 26 June to 2 July.
Alongside the uplift from index fund inclusion, several investment banks have issued positive analyst statements on SpaceX, marking the end of the ‘quiet period’ that typically follows an IPO. Morgan Stanley, Goldman Sachs, UBS and Bernstein Research are among the names backing the stock with ‘buy’ recommendations or equivalent, based on asset strength and long-term growth prospects.
