SpaceX in the Nasdaq-100: Does It Threaten Index Fund Stability?
SpaceX's rapid inclusion in the Nasdaq-100 has raised concerns about index fund risk, but experts argue that index funds remain safe despite overvalued individual stocks.
Index funds are often considered a safe investment, allowing investors to bet on the entire market rather than picking individual stocks. When SpaceX, a highly overvalued company, was fast-tracked into the Nasdaq-100, it sparked debate about the stability of index funds.
Nasdaq changed its rules at SpaceX's request, allowing newly public companies large enough to join the Nasdaq-100 on their 15th trading day. SpaceX entered the index on July 7, forcing index funds to buy its shares.
Burton Malkiel, who popularized index funds, says that while he would not buy SpaceX stock individually, it is not a reason to avoid index funds. He notes that only a small minority of stocks drive market returns, and experts cannot pick them better than the index.
SpaceX's inclusion means index funds now hold shares of a company where Elon Musk holds majority voting rights, raising governance concerns. Major investors like CalPERS have criticized the concentrated power structure.
Despite fears of an AI bubble and market concentration, Malkiel maintains that index funds are suitable for most investors. He points out that markets have always been concentrated and that tech overhype is normal.
To avoid SpaceX, investors can choose S&P 500 index funds or ESG funds, though the latter have higher fees and lower performance.
