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SpaceX Is Coming Early to Your Index. How Worried Should You Be?

Owen Lamont of Acadian Asset Management says the fast-tracking of mega IPOs shouldn’t keep passive investors up at night, but it isn’t great either

A lot of investors chose to buy SpaceX SPCX 19.22%increase; up pointing triangle when it went public last week. Next week, others will be buying it whether they like it or not.

Some index providers, including Nasdaq and FTSE Russell, are speeding up the inclusion of SpaceX and other megasize initial public offerings, adding them to major benchmarks after as little as five days of trading instead of waiting for the typical “seasoning period” of up to a year. This has a lot of passive investors concerned about being exposed to an untested company.

But how worried should they be?

We put the question to economist Owen Lamont on this week’s episode of WSJ’s Take On the Week podcast. A former finance professor, he is a portfolio manager at Acadian Asset Management whose investment research is widely followed.

Owning some of SpaceX shouldn’t keep true passive investors up at night, he says. “If you’re an index investor, you’ve already decided not to worry about every little thing.”

But the indexes’ moves are unlikely to boost investors’ returns and could be a sign of an overvalued market, Lamont says.

He has called past waves of IPOs and other stock issuance the “third horseman of the bubble apocalypse” because they tend to precede major market corrections.

“If we were hypothetically in a big [artificial-intelligence] bubble, one of the symptoms of an AI bubble would be a lot of IPOs,” he says.

“Another symptom would be a huge pop,” he says, referring to first-day IPO jumps. SpaceX’s pop was 19%, a modest rise compared with other recent buzzy offerings.

Are we in the midst of one of those IPO waves? Check out this week’s episode to learn what Lamont thinks.