Buying into SpaceX, Anthropic and other mega-IPOs could be a problem for your index fund

MW Buying into SpaceX, Anthropic and other mega-IPOs could be a problem for your index fund

By Drew Miyawaki

Index rules and timelines will divide winners and losers

SpaceX is a hotly anticipated IPO, but index-fund and ETF investors could be locked out of any early gains.

Will your index fund or ETF own these newly minted megacap stocks immediately, years from now or not at all?

The next blockbuster IPOs may force investors to confront an uncomfortable truth: Index investing is not nearly as passive as many assume.

Index funds and exchange-traded funds appeal to investors by offering simple, broad market exposure. But beneath the surface, index construction involves many active decisions. ETFs tracking indexes can have materially different compositions and performance depending on if, when, and how they include specific companies.

Now, as several massive private companies including SpaceX, Anthropic and OpenAI prepare to enter the public markets, it's more urgent than ever to be aware of index construction and how it impacts investors. The question is: Will your index fund or ETF own these newly minted megacap stocks immediately, years from now or not at all?

Most investors assume major indexes are largely interchangeable. After all, the Russell 1000 RUI and the S&P 500 SPX are both considered proxies for large-cap U.S. stocks and have been more than 99% correlated over the past decade. Yet small differences in methodology can create major divergences over time.

Consider Amazon.com (AMZN). After its IPO in 1997, the company was added to the Russell 1000 roughly a year later; the S&P 500 did not follow suit until 2005. Investors tracking one index gained exposure to one of history's greatest wealth creators years before investors tracking the other index. That discrepancy was not an accident or bad luck; it was the result of index rules.

The S&P 500 is often described as representing the 500 largest U.S. companies, but that is not technically true.

The S&P 500 is often described as representing the 500 largest U.S. companies, but that is not technically true. S&P refers to the index as containing 500 "leading" companies. To qualify, firms must satisfy profitability requirements, including positive earnings in the most recent quarter and over the prior four quarters combined. In other words, the S&P 500 is not purely a size-based index; instead, it makes a quality judgment.

New IPOs also generally must wait at least 12 months before becoming eligible for inclusion. Historically, that conservative approach was seen as prudent, protecting investors from speculative excess and ensuring that index constituents demonstrated operational viability before gaining access to trillions of dollars of public capital flows. Now, the emergence of megacap private companies like SpaceX is challenging that framework.

Index providers face pressure to adapt as today's venture-backed giants are staying private far longer than before, accumulating enormous valuations before ever reaching public markets. By the time they IPO, they may already rank among America's corporate titans. To keep up, index provider FTSE Russell recently revised its IPO inclusion framework, allowing certain large IPOs to enter Russell indexes after only five trading days. Nasdaq has also accelerated eligibility timelines for inclusion in the Nasdaq-100 NDX, permitting fast-track additions after just 15 days in some cases.

Index providers have strong commercial incentives not to miss the next stock-market superstar.

These are not minor technical adjustments, but consequential policy changes that can reshape index performance.

If a newly public company such as SpaceX or Anthropic performs exceptionally well shortly after listing, indexes that include them immediately could materially outperform others that wait months or years. In an industry where every basis point matters and fund flows follow performance, index providers have strong commercial incentives not to miss the next stock-market superstar. That raises an uncomfortable question: Are these rule changes thoughtful evolutions in index design, or reactive attempts to preserve competitiveness?

Index licensing is an extraordinarily lucrative business. ETF issuers compete aggressively over benchmark selection, and investors increasingly pay attention to which indexes own the most influential companies shaping the future economy. No provider wants its flagship index criticized for excluding the next Nvidia because of outdated eligibility rules, yet every inclusion decision creates consequences elsewhere.

Indexes such as the S&P 500, Russell 2000 RUT and Nasdaq-100 are designed to maintain relatively fixed constituent counts. Adding a new megacap company means removing another. It also requires selling portions of every existing holding to fund the purchase of the new entrant. In the S&P 500's case, admitting an unproven IPO could mean removing a consistently profitable incumbent company that satisfied the index's historical quality standards.

The broader lesson investors should take away from this shift is that these are not passive decisions. They are active judgments about what deserves representation in "the market." Indexes are not static mirrors reflecting financial markets with perfect objectivity. They are constructed products governed by rules, committees, methodologies, assumptions and increasingly competitive business pressures.

Rules evolve, eligibility criteria change, rebalancing schedules shift and the IPO process gets revised. Every one of those choices influences portfolio exposures and investor outcomes. The coming generation of mega-IPOs may finally expose to the average investor the fiction embedded in the phrase "passive investing."

Owning an index fund does not eliminate active decision-making. It simply delegates those decisions to an index provider.

Drew Miyawaki is director of Westwood Managed Investment Solutions.

Also read: This mutual fund lets you buy SpaceX stock before the IPO - but what are you actually getting?

More: Anthropic just set the stage for a blockbuster IPO - beating OpenAI to the punch

-Drew Miyawaki

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June 02, 2026 12:40 ET (16:40 GMT)

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