SpaceX IPO: Did you know you can still invest without buying shares directly?

Shares of Elon Musk’s SpaceX made a strong debut on the Nasdaq on Friday, June 12, trading at $150 apiece, an 11% premium to their issue price of $135. The IPO marked Wall Street’s largest public offering and valued the rocket maker at about $1.96 trillion. Although the stock opened below Wall Street expectations, it soon gained momentum and climbed to $164, a return of nearly 20% above its IPO price.

While the strong debut boosted investor interest in the company, experts who spoke to CNBC cautioned against chasing the newly listed stock just because of the IPO hype. They told the publication that newly public companies are often loss-making early on, and buying such individual stocks instead of mutual funds can exacerbate that volatility for unwary investors because of their concentrated positions.

So if you’re looking for potentially lower-risk exposure to SpaceX, mutual funds and exchange-traded funds that hold the stock can offer an alternative by providing diversification while participating in the company’s growth.

How to get access to SpaceX through index funds?

Quick answers to key questions

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You can invest in SpaceX indirectly through mutual funds or exchange-traded funds (ETFs) that hold SpaceX stock. These funds offer diversification and mitigate some of the risks associated with direct stock purchases.

Newly listed stocks, including SpaceX, can be volatile and often loss-making in the initial period. Investors are cautioned against chasing the hype, as concentrated positions can increase risks.

Investors can gain access to SpaceX through index funds in the days or weeks after the IPO, depending on specific criteria set by the index providers, usually within 15 trading days if it ranks among the top stocks by market capitalization.

Actively managed funds can build positions in SpaceX before they are included in index benchmarks, allowing for potentially faster access and greater exposure compared to passive index funds.

SpaceX’s IPO is significant because it represents the largest public offering in Wall Street history, showing strong investor interest and setting a precedent for future mega-IPOs from companies like OpenAI and Anthropic.

Mutual funds generally fall into two categories: actively managed funds and passively managed funds. Active funds rely on fund managers to select securities they believe will outperform the market, while passive funds track the performance of a specific benchmark index.

Passive funds, commonly known as index funds, track a market index and offer diversification at a lower cost. Historical data shows that over the long term, these funds generally outperform those in which money managers actively pick stocks, the publication said.

Many index fund investors will gain access to SpaceX in the days or weeks after the IPO, experts told CNBC. However, the timeline depends on the specific criteria set by the various index providers. It ranges from a few days to more than a year.

Nasdaq will add a newly listed company to the Nasdaq 100 index as early as 15 trading days after its IPO if it ranks among the index’s 40 largest stocks determined by market capitalization, a criterion SpaceX is expected to meet. If a company does not qualify in this process, it usually takes longer to enter the index, often around three months.

Some index providers, including Nasdaq and FTSE Russell, have relaxed their inclusion policies this year to “accelerate” the acceptance of mega-IPOs into their respective indexes, the publication said.

How to access SpaceX through active means?

Those who missed the IPO allocation can still get exposure to SpaceX stock. Many actively managed mutual funds and exchange-traded funds already own significant stakes in SpaceX

Unlike index funds, which typically add newly listed companies only after they are included in benchmark indexes, active fund managers can build positions before or shortly after an IPO.

For example, eight active funds, including mutual funds, ETFs and closed-end funds, held positions in SpaceX that exceeded 10% of their net asset value, CNBC reported, citing Morningstar data as of June 1.

These funds, from largest to smallest exposure, are:

Baron Partners fund
Baron Asset Fund
Baron Focused Growth Fund
Baron Global Opportunity Fund
Private equity fund
Baron Opportunity Fund
ERShares private-public crossover ETF
Ark Venture Fund

SpaceX made up 37% of the assets in the Baron Partners mutual fund, according to Morningstar. But those holdings could be diluted if investors flock to such offers, experts said in the publication.