Q&A: Mega IPOs and what they mean for your investments

From names like SpaceX, OpenAI and Anthropic to blockbuster listings yet to come, mega IPOs (“initial public offerings”) often dominate headlines. But what do they mean for everyday investors – and how do they end up in your fund?

Why are companies like SpaceX, OpenAI and Anthropic getting so much attention?

These are some of the most talked-about companies in the world – focused on space exploration and artificial intelligence (AI) – and many are still privately owned.

If or when companies like these go public through an IPO – which is when a company lists on the stock market for the first time – they could be among the largest stock market listings ever. That naturally grabs attention from investors and the media.

If a company lists on the stock market, does it instantly appear in my index fund?

No – this is one of the most common misconceptions.

Indices (and the funds that track them) follow clear, rules-based processes. Companies are only added if they meet specific criteria and this doesn’t happen instantly.

Different index providers also have their own rules and approaches, so the timing can vary. For example, some index providers can fast-track very large IPOs.

If a company joins an index, how much of it is included?

An index doesn’t simply reflect a company’s total size. Instead, it’s designed to reflect what investors can actually buy.

That’s where “free float” comes in – the portion of a company’s shares that are available to public investors, rather than held by founders, employees or early backers. The free float can change over time as more or fewer shares become available for public trading.

Because of this, a company might have a very large overall value, but only a smaller portion of its shares are available to trade at first. That means its starting weight in an index can be relatively modest. For example, SpaceX is expected to float only around 4% of its shares with an estimated value of around $75 billion, according to media reports.

Does an IPO’s importance grow over time?

Many IPOs start with a relatively small portion of shares available to the public. Over time, more shares can become available and the company’s weight in the index can increase gradually. More shares usually come available as owners of the company are allowed to sell their holdings.

So, when a company like SpaceX joins an index, it will start off small and grow over time, rather than being added at full size straightaway.

Do IPOs typically perform well after listing?

Not always.

Highly anticipated IPOs often attract strong demand and media excitement. However, early enthusiasm doesn’t guarantee gains. After a company lists on the stock market, its share price may rise quickly or it may fall or fluctuate.

This uncertainty is one reason why trying to pick individual IPO winners can be difficult.

How do index funds handle IPOs?

Index funds follow the rules of the index they track, which are set by index providers such as MSCI, S&P and FTSE. That means new companies are only added once they meet the index provider’s criteria.

The most widely used indices, including ones from MSCI, S&P and FTSE, use a market capitalisation-weighted approach, which means a company’s weight in the index is based on its investable size (free float). Its weight can increase over time as more shares become available to investors.

This rules-based approach helps ensure index funds stay aligned with the real, investable market – rather than short-term speculation.

Do index providers treat IPOs in the same way?

No – while index inclusion is always rules-based, approaches can vary between providers.

Recently, some providers have relaxed their rules around how many shares need to be available before a company can be included. This means very large IPOs could be added more quickly than in the past, even if only a small portion of shares are available at first.

However, these changes won’t apply across the board. For example, a company like SpaceX won’t be included in the S&P 500 immediately, as the small number of shares available to the public would fall below its threshold. It is expected to be added later as more shares become available.

By contrast, it will be included earlier in some FTSE global indices – meaning it could appear sooner in the funds that track them, such as the FTSE Global All Cap Index Fund – although it would still represent only a small part of the index at first.

Is investing in index funds the best way to access IPOs?

For many investors, index funds are one of the simplest and most effective ways to access an IPO.

Here’s why:

1. You don’t need to time the IPO

You don’t have to guess when a company will list, whether the price is fair or how it will perform in the short term.

2. You get exposure automatically

If a company becomes part of the index your fund tracks, you’ll gain exposure automatically and in line with its true investable size.

3. You stay diversified

Even the largest IPOs don’t dominate a well-constructed index because weights are based on free float and spread across hundreds or thousands of companies. This helps reduce the risk of any single company driving your returns.

Why do mega IPOs reinforce the case for diversification?

Mega IPOs can feel like “once-in-a-generation” opportunities. But history shows outcomes are uncertain and early excitement doesn’t always last. Even high-profile IPOs, such as Facebook, Deliveroo and Uber, saw their share prices fall initially after going public. 

Index funds help you participate in growth without needing to bet on a single outcome.

Instead of trying to pick the next big winner, you stay invested across today’s market leaders, tomorrow’s emerging companies and everything in between.

Index funds offer a simple, steady way to benefit from new opportunities – without needing to chase the hype.

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