SpaceX joins the Nasdaq-100, bringing it into many index funds

In short: SpaceX was added to the Nasdaq-100 soon after its IPO, so many index funds automatically bought SpaceX shares.

What happened

SpaceX recently went public, meaning its stock began trading on the stock market. Soon after, it was added to the Nasdaq-100, a well known list of 100 large companies.

The Nasdaq changed its rules so a newly public company can be added on its 15th day of trading if it is big enough. Reuters reported SpaceX requested this faster entry. SpaceX joined the Nasdaq-100 on July 7, and funds that track that list had to buy the stock.

This matters because index funds are designed to follow a list automatically. Think of an index fund like a shopping cart that must contain whatever items are on a fixed grocery list, even if some shoppers would not pick those items on their own.

Some investors worry because SpaceX is very large, and because Elon Musk has unusual control over the company through voting rights. Leaders at big retirement funds, including CalPERS and New York state and city officials, criticized SpaceX’s governance, which is a word for how a company is controlled and who gets a say.

Why it matters

If you own a Nasdaq-100 index fund, you may now own some SpaceX without choosing it directly. However, Burton Malkiel, an early advocate of index funds, told The Verge that SpaceX is not a reason to avoid index funds, because index funds spread your money across many companies, and they adjust over time as prices change.

Source: The Verge AI