Despite playing a major role in the markets and the minds of investors following its historic initial public offering, SpaceX still comprises a relatively small portion of the Morningstar US Total Market Index. In fact, the company had a smaller impact on index turnover than anticipated in the most recent Morningstar Market Indexes quarterly reconstitution, according to new insights from Morningstar Indexes.
While SpaceX’s total market capitalization stood at just under $2 trillion on September 4, “ranking day” for the quarterly reconstitution of the Morningstar Market Indexes, its weight within the Morningstar US Total Market Index is just 0.1%. This is due to Morningstar Market Indexes IPO methodology, which is designed to help investors gain timely exposure to eligible IPOs while its free float rules ensure indexes are representative of the investable market. Eligible IPOs are added to the index within five trading days but at a weight that represents their true “free float,” or the shares available publicly to investors.
Alexander Poukchanski, director of index analytics at Morningstar Indexes, said: “The role of a market benchmark is to accurately reflect the current composition of the investable market for investors in a cost-efficient way. The Morningstar Market Indexes achieve this by the timely inclusion of major IPOs and weighting index constituents by their float-adjusted market cap. And by using total market capitalization to assign companies to market segments, our quarterly reconstitution accurately reflects the impact of mega-IPOs like SpaceX on broad market concentration.”
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