How to avoid Mega-IPOs (SpaceX, Anthropic, OpenAI) as passive indexer

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hi all
having abit of a pessimistic view on the current AI & mega IPO craze, for example when looking at P/E ration of <100 and the wrong sign on top, i start asking myself: “should I not rather avoid exposure to SpaceX, OpenAI and Anthropic?”

now i am a passive indexer, but there are differences: VT/VTI will have SpaceX in their portfolio after the closing of the 5th trafing day which is the coming friday

VOO and other SPX derivatives keep the 12-month waiting period (see same link above).

that makes me wonder if i should jump ship from VT towards VOO+VXUS. it almost conserves my world portfolio, just excludes the mega IPOs for another 12 months, by what these companies will be handled less emotional (or so i hope^^)

Any opinons or challenging from the community?

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Quote from someone on the internet™:

SpaceX’s initial weight in VTI/VT likely won’t be based on the full ~$1.77T valuation. Index funds generally use free-float-adjusted market cap. If only ~$75B–$95B is actually public float, that implies roughly:

VTI: ~0.10%–0.15%
VT: ~0.06%–0.10%

Source: https://x.com/egr_investor/status/2065516168123916562

In other words: The losses you make from shifting your portfolio (fees, spreads) are likely higher than the percentage of SpaceX shares in VT. But I like this thread, I’m in the same bot.

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I like the idea of the UBS MSCI Wprld ex MegaCap ETF. However, it only launched in September 25 and so far it only has 8M AuM.

Time will tell if MrMarket gives rhis ETF the right to survive. If not, I would probably stick with FTSE RAFI for this purpose of breaking nom-produtable megaCap exposure and mega IPO’s

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You might get your answer.

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I don’t like their prospects either but the reality is that a lot of AI fast money will rotate from Google, Nvidia, semis, etc.. to Anthropic and OpenAI. Which is why I would expect indexes, at least initially, to underperform the broader market.

It’s important to recognise how much your portfolio is already an AI play. The more appropriate question, if any, would be whether to reduce AI exposure.

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I switched from VTI to 90% VOO and 10% SPMD. Same TERs, spread at VOO was 1 pip.

Why? Yes, the float of spcx is small, but rapidly rising: In the next 6 months, all non-Elon shares become unlocked. This happens with 20% after 1st post IPO quarterly results, 27% after the second and 5 instances of 7% in between. If the stock traded at IPO plus 30% for five business days by end of June, this immediately unlocks another 10%. In any case, they all become sellable mid December. We are talking here roughly about 55% of spcx (=non-Elon ownership not on market). Elon shares free up 1 year after IPO. If the float increases, etfs buy at next reconstitution of index.

Also, I do not like to feel playing the bagholder for financial engineers. You mentionned Anthropic, Open AI. More “geniuses” might reasonably be expected to try and make profit of this. As a long term investor, I expect profitable companies to perform better. Buying immediately at IPOs was historically not a superior long term strategy.

The company has to be GAAP profitable before S&P500 inclusion. For 1 year and the last quarter. In the 1960ies, it was 4 years. This is not applicable to S&P broad market indexed etf.

Spcx might however have a loophole in the S&P rules to join even if unprofitable. It can create all the necessary shares to merge with tsla, maybe leading to inclusion. I posted the rules in the other thread about spcx. The incentive is there: The S&P 500 index very roughly moves as much as all the other US indices combined.

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I’m missing the actual investment advice for a passive investor.

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Timestamps S&P 500 and Total market index: is spacex really going to take a relevant % of our world portfolio

Use Dimensional ETF instead.

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Not for a while, those indices are float weighted.

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They hug the Russell 3000, have much higher TER and for example also Tesla (in a lower weight, last time I checked). It’s a possibility, though.

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For a truly passive investor, the only really relevant question would be: Which asset/index?

If an investor does not want to invest in IPOs, then one can assume they will be invested in an index with a long seasoning period (e.g. S&P 500). If one is invested in an index with a fast-track option (e.g. Nasdaq 100), one would assume that they have reason to be.

Changing the asset/index based on single events (e.g. an IPO) is, essentially, active investing (which is, of course, perfectly ok). For a passive investor, a decision to change their original asset/index should/would be based on broad criteria, rather than single events.

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I am also considering switching from VT to VOO and VXUS, or go with Dimensional/Avantis, or perhaps even a little SPMO for USA. But I will probably end up waiting for more IPOs (Anthropic and OpenAI) until I do something. Does anybody know, can the S&P comittee just decide next quarter to include any stock, are they beholden to anyone?