SpaceX is in the headlines - but is it in your portfolio?

An IPO, or Initial Public Offering, is when a private company lists its shares on the stock market for the first time. From that point, investors may be able to buy shares and become part-owners of the business.

A big IPO can sound as though it should have an immediate impact on portfolios. In practice, the impact depends on how many shares are actually available for investors to buy, whether the company is added to market indices, and how different fund managers approach new listings.

This is where the phrase “free float” matters. Free float simply means the shares that are available for ordinary investors to actually buy and sell. Some companies make most of their shares available to the public, whereas others list only a small proportion, with the rest still held by founders, employees or other early investors.

This distinction is important. A company can be very large overall, but if only a small proportion of its shares are available to buy, its initial weight in an index – and therefore in many portfolios – may be much smaller than the headlines suggest.

Figure 1: Illustration of free float shares compared to total outstanding (5% float)

Source: Albion Strategic Consulting

This has happened before. Saudi Aramco was valued as one of the largest companies in the world when it listed in 2019, but only a small percentage of its shares were available to public investors. As a result, many investors would not have seen it appear as a major holding in their portfolio.

This can change over time. After an IPO, some early shareholders are often restricted from selling for a period. When those restrictions end, more shares can become available. If that happens, the company’s weight in indices and portfolios may gradually increase.

It is also important to know that companies are not always added to major indices immediately. Index providers have rules about size, trading history and the amount of stock available to public investors. These rules can affect both whether a company is included and how quickly that happens.

• Minimum total and float-adjusted market capitalisation (e.g. >$10bn)
• Minimum free float (e.g. 10% of the company, or greater than $2bn)

Different fund managers may also take different approaches. Some may buy very soon after an IPO. Others may wait until there is more trading history and a clearer market price. This is not unusual.

Figure 2: % in top 10 holdings in a market index fund, and initial expected free float size of SpaceX

Source: Albion Strategic Consulting. For illustrative and example purposes only.

In the case of SpaceX, its expected initial free float weight is only around 0.1% (several sources estimate the initial listing to be around $75bn. The US stock market is currently over $75T). Consequently, it is only likely to form a small element in portfolios initially.

Your portfolio is built on the view that market prices usually reflect available information very quickly. In simple terms, it is very hard to consistently find shares that the market has mispriced. Rather than trying to chase the latest headline, the focus is on broad diversification and disciplined exposure to long-term drivers of return.

The exact exposure to a company such as SpaceX will depend on its characteristics and the approach taken by the funds in the portfolio. If it trades as a highly valued growth company, some portfolios may hold less than the broad market. If its characteristics change over time, that exposure could also change.

Over time, the picture may develop as more shares become available and the company’s valuation changes. However, that process is likely to happen gradually rather than all at once.

So, while SpaceX, Anthropic and OpenAI may be significant companies in headline terms, their initial impact on portfolios may be modest. Limited free float, index rules and fund manager discipline all play a part.

What matters most is that your portfolio is not dependent on one new listing or one company. It is designed to spread risk across many investments, regions and asset classes.

Our Investment Committee will continue to monitor developments before, during and after major listings like this, but we will continue to make decisions based on evidence, diversification and long-term investment discipline.