PSA- Mega IPOs are nothing to worry about as an index investor
With Space X, Open AI and Anthropic expected to go public soon I’ve seen a lots of confusion about how index funds work.
A lot of people think that because SpaceX has a massive $1.75T valuation, it’s going to instantly debut as a top 10 holding in VTI. That’s not how it works.
VTI (and most index funds) are free-float adjusted.
This means the index only cares about the percentage of the company that is actually available for the public to trade.
If SpaceX only sells 5% of the company to the public, which is what they are expected to do, VTI treats it like a $50B to $100B company, not a $1.75T behemoth. As they gradually sell more shares over time, VTI will slowly increase its weight.
To put it into perspective, based on what is initially expected to be sold at IPO, SpaceX, OpenAI, and Anthropic COMBINED will likely only make up about 0.3% of VTI.
For context, all three of those massive names COMBINED will have around the same weight as Disney, which sits around the 55th largest company in the index.
Just wanted to throw this out there since the media fear cycle is distorting the reality of how indexing actually works!