Investors want out of Musk’s SpaceX gamble. They may not have a choice

While some investors fear missing out on Elon Musk’s multi-trillion dollar SpaceX initial public offering, others are concerned about the potential impact on the valuation of their holdings.

Gemma Dale, director of SMSF and investor behaviour at online stock-trading platform nabtrade, said investors are wary that SpaceX’s IPO could distort the balance of their exchange-traded funds (ETFs) once it is incorporated into the funds.

The IPO “creates this issue for many clients who don’t particularly want exposure to something like SpaceX [but] who are by default, going to be acquiring it through their passive holdings,” said Dale.

The planned SpaceX IPO could raise as much as $US75 billion ($104 billion), valuing the company at up to $US1.8 trillion ($2.5 trillion), which “approaches the combined market cap of the 200 largest stocks on the ASX”, according to Morningstar.

That gives it an implied price-to-sales ratio of about 100x sales. The listing’s gargantuan size has indexes in the US mulling rule changes that would allow SpaceX to enter its indices earlier, with less of its shares traded publicly, than IPOs in the past.

Nasdaq, the exchange where SpaceX will list, has shortened the amount of time a share must trade before being included in its indexes, from three months to 15 days. The requirement that at least 10 per cent of its share trades, has also been dropped by Nasdaq, allowing SpaceX to float lesser amount.

S&P Global, which manages the S&P 500, is considering cutting the amount of time required to allow a stock into an eligible fund from a year to six months.

There are over 150 ETF products based on the Nasdaq Composite index and the S&P 500, including a number of popular ones in Australia. These ETFs invest in all companies on those indices by default, meaning investors cannot opt out of investing in a certain company.

Depending on the amount of SpaceX stock that floats, when it enters these indices and moves dramatically and up down, it could affect the entire index.

Dale said: “We have probably heard more concern from investors who don’t want ... exposure to SpaceX than those who are actually seeking it.”

While CommBank has reportedly told customers they’ll be able to invest directly in SpaceX IPO, nabtrade customers are more divided.

Some think: “‘Even if Musk is over-promising and underdelivers, he has delivered some extraordinary things and I would like to be part of that’,” said Dale. “There’s another cohort who go, ‘this is completely outside my risk profile’.”

SpaceX has reshaped the economics of orbital launch through the re