SpaceX IPO set to bolster space ETFs: What it means for investors

00:00 Julie

Multiple ETF issuers are gearing up for SpaceX’s hotly anticipated public offering. Several SpaceX single stock long ETFs have already been filed ahead of the IPO. So let’s look at how SpaceX is set to affect this market. Joining me now, Dave Nadig, president of ETF.com. He’s joining me for this week’s ETF report brought to you by Pimco. Dave, it’s great to see you.

00:23 Julie

Um, I mean we’ve been talking about all of the sort of like ripple effects from SpaceX in the public markets, um that it’s going to be so huge of value at a total up to $2 trillion. So like big stuff.

00:39 Julie

And it’s so fascinating how we have started to see the index providers already get ready and change some rules so that they can go not just into those indexes, but also into ETFs. Like what has stood out to you from this whole process?

01:03 Dave Nadig

Yeah, the big one is the changes to the Qs, the Nasdaq 100 which a lot of money tracks. Uh as of May 1st, they changed the rules for how the Qs work to allow SpaceX or any other top 40 huge company to enter the index after 15 days, which is very very quick. Uh and to do so with sort of an an accelerated float versus how some other indexes do things.

01:31 Dave Nadig

So, SpaceX will enter the S&P 500 probably at about a 50 basis point to a half a percent weight. Uh and then 15 days later, everybody 15 days after the IPO, the Qs and every other fund that tracks the Nasdaq 100 will have to go out and buy half a percent of their fund into SpaceX.

01:54 Dave Nadig

That could be something like $15 billion dollars of demand on what we’re expecting to be something like $75 billion of available stock.

02:03 Julie

I mean, that’s that’s pretty incredible, right? That even if for example, and I don’t know if this there’s a world in which this happens. But let’s say the the stock falls on the first day, right? But there is that that event coming that is going, you know, usually you look for like a negative event coming, say the end of the lockup, right? Which is something that can cause negative pressure on a stock. It’s pretty rare to have this kind of of a catalyst for the stock that you see coming so clearly.

02:37 Dave Nadig

Yeah, and anytime the market when anytime everybody in the market knows something, that is a very dangerous position to be in. When everybody knows that this multi-billion dollar trade, which is going to have to be market on close on that 15th day. Everybody knows that trade has to happen. Any buying and selling that happens in those 15 days in between the IPO and the Q’s inclusion is effectively people warehousing that speculation.

03:08 Dave Nadig

There’s no real price discovery that’s going to happen on what the market thinks SpaceX is worth until we get all the way through all of this index shenanigans.

03:20 Julie

So, Dave, as you know, there is frequently a conversation around, oh, if you buy the QQQs or if you buy the SPYs, you’re really just buying a a basket of tech stocks, right? And now you have this one come in out of the gate, which is already as you say, probably accounting for a half percent or or or to a percent depending on on where it ends up. I mean, what are the risks around that, especially as such a newly public company coming in?

03:52 Dave Nadig

Yeah, I I think we have to acknowledge this is very different, right? This is not Saudi Aramco coming public. This is a non-profitable company that’s going to come to market at a hundred times its revenue. There are no earnings, it’s a lost, it make it loses money, right? So we’re taking a non-profitable tech company effectively and shoving it right into the top of the leaderboard. I think this has some real implications for investors. I think investors need to ask themselves whether they want to own SpaceX right now.

04:22 Dave Nadig

You’ll be able to buy it right after the IPO, right? Let’s let’s let’s be really clear about this. The shares that have to be bought by the Qs are the same shares any individual investor can go buy. So you’re playing the same game as everybody else. So, I think this is a rare moment where it’s smart for investors, particularly if they’re trading in the markets a little more frequently, to ask when and why they want to own SpaceX and not have it just show up accidentally in something they already own.

04:54 Julie

Yeah, um, well, you can also play it very deliberately by buying a single stock ETF, whether they’re leveraged or not, right? If you really want to supercharge it uh to to either side. Is it also frequent at this point, um, forgive me, I don’t know this, when a company comes public to have those single stock ETFs right away?

05:22 Dave Nadig

It it is it is now in the last year and a half, right? These things didn’t exist a few years ago. It’s really been since 23 we’ve seen this rise in both single stock leverage products and single stock sort of options writing products. we’ve got filings for both of those types of products already on SpaceX. So you’ll be able to get your options income out of it, you’ll be able to get your 2X leverage, you’ll be able to get your 2X inverse on this, probably within days of when these things actually start trading.

05:54 Dave Nadig

I’d point out that we already have an auto callable ETF filed for D-RAM and that’s an ETF that went public a couple weeks ago. So, yes, there’ll be dozens of versions to of different ways to get your SpaceX exposure if that’s really what you want.

06:05 Julie

See, how who’s trading these things by and large? Is it mostly the professional class institutions that are in them or is it like, you know, the guy sitting at home trading options?

06:21 Dave Nadig

It’s it’s obviously always tough to say exactly who, but when you look through the filings that we can see, these are largely retail products, right? No financial advisor is buying 2X SpaceX or micro strategy options income. These are retail, one might even see say Dgen gambling type products that go right alongside prediction markets. And, you know, that’s okay. The market can hold lots of different kinds of players, but it’s important to recognize what you’re buying. Here you’re not buying long-term buy and hold necessarily.

06:53 Dave Nadig

You you’re buying a hot IPO out of the gates. So here, I would really advise investors have some caution. If you’re really hot on space, there’s a lot of great space, you can go by NASA, you can go by X O VR, go have Ron B, there’s lots of ways to get this exposure. Uh, but I think you need to be intentional about getting it.

07:12 Julie

Yeah, we’ll see how it all plays out, Dave. I’m excited to see how it does. Great to see you. Thank you so much.

07:19 Dave Nadig

Great to see you, Julie. Cheers.

07:20 Julie

Take care.