It would make up less than 0.15% of the index with the limited float available at IPO. Even if it went to zero, your portfolio wouldn't notice it.
It would make up less than 0.15% of the index with the limited float available at IPO. Even if it went to zero, your portfolio wouldn't notice it.
Firstly, I think 0.15% might be significantly lowballing. Other commenters I've read trying to low ball it suggested 0.5%, which matches up with my calculations - this IPO is allegedly $1.5T on the total amount, and 25% is up for sale, making $375B. The S&P 500 market cap is $69T, which puts the IPO at 0.54%.
In addition, that's just the initial IPO free float value, and other shareholders will be free to shed their shares after IPO (and presumably, that's where the bulk of index investment funds will actually buy from), so the free float will be higher, pushing up that share even higher.
Sure, in terms of overall market fluctuations, 0.5% is significantly less than a typical day of market volatility, but on the other hand in terms of my current portfolio, as a dollar amount that's significantly more than my monthly expenditure when I'm not vacationing. I don't particularly want to be funding Elon's exit strategy when I already believe it to be a scam. Thanks to S&P's decision, about 25% of my investments are safe, but approximately 60% of my funds are linked to FTSE World indicies, which is changing the rules.
As I stated in another post, this is just a cheap stunt to force passive investors to prop up the price before it has a chance to settle. The majority of IPOs settle on a price below the IPO price in the months afterwards, and never before have we seen an IPO with such a high P/E ratio. This is literally unprecedented, and the sensible thing to do would be to stick to the old rules to allow the market time to discover the true value before inclusion in the indices. At the moment, the valuation is just a number in Elon's head rather than a fair market valuation. Forcing index-following funds to purchase it at the artificially high price is reckless at best and profiteering at worst.
In addition, it's not just 0.5%. It's 0.5% now, and then the same for Anthropic, and then the same for OpenAI, then all the other IPOs in the future. To put that into perspective, most investors would baulk at 0.38% TER for a passive fund and move to 0.12% TER. 0.5% isn't nothing.