SpaceX Just Got Fast-Tracked Into Your Portfolio

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**Ed Elson** (1:32)
If money is evil, then that building is hell.
Welcome to Prof G Markets. I'm Ed Elson, it is July 7th. Let's check in on yesterday's market vitals. The major indices rose as chip makers climbed out of last week's slump. The Dow closed about 53,000 for the first time. Oil was stable as Saudi Arabia cut its prices and OPEC increased its production target. And finally, Dell stock popped as much as 8% after some comments from the president. More on that later. OK, what else is happening? It's official. SpaceX is part of the NASDAQ 100 As of this morning, SpaceX's performance will influence the more than $1.4 trillion that is benchmarked to the index. The stock currently has a weight of about 1%, and now tens of millions of Americans invested in the NASDAQ 100 index funds indirectly own it. SpaceX got in under new fast track rules, which cut the required trading history to just 15 days and also got rid of the float requirements altogether. The NASDAQ's rapid inclusion of SpaceX leaves investors with many questions, one of them being, has this company proven itself enough to be included in one of the world's most followed stock indices? Here to discuss this question, we're speaking with Michael Green, Chief Strategist and Portfolio Manager for Simplify Asset Management. Michael, it's good to see you again. I think a lot of people were wondering if this company should really be a public company, if it was profitable enough, and also if the price made any sense. But now there's sort of another question, which is, should it be in passive index funds, specifically the Nasdaq 100, which a lot of passive investors own indirectly?
What do you make of it?

**Michael Green** (3:41)
Well, I mean, unfortunately, I think this is the logical conclusion of America's shift towards passive index investing. Rather than have a choice being made by an individual or by a portfolio manager, we now have choices that are being made simply by the index, which has an obvious incentive to get companies public, get them listed on the Nasdaq, offer Nasdaq inclusion as a component of that in order to get the listing on the Nasdaq index as compared to the New York Stock Exchange or other exchanges they could potentially have listed on.
So, we understand why this is occurring, or we have a very strong sense for why this is occurring. It is an opportunity to effectively exploit the index position to bring the company public, get it listed, drive the capacity for insiders to sell shares and ultimately create liquidity for those inside investors. As to whether or not that's a good idea, obviously I think it is not from the tone that I'm using. I think it is candidly quite manipulative. We have allowed index investing to receive special treatment under the law, under which it does not have the same requirements that active management has for fiduciary standards or suitability standards. If I run a strategy that says I'm going to do X, when I suddenly, unexpectedly change that, I'm allowed, my investors are allowed to sue me. We are by and large protected from that in the index world, as long as the index methodology has changed, rather than simply the inclusion of a new stock. In this case, they published their intent to do this in advance of the listing, and it was open for comment period. My understanding is the comments were almost universally negative. I certainly contributed several of those myself. I was much like Chicago, I voted twice and often, even after I had died.