When mega-IPOs meet index investing

For decades, public markets were where companies grew up. Investors could watch young firms move from small-capitalization (cap) to mid-cap level and, for the rare few, into the ranks of the largest companies in the world. That journey today happens increasingly in private markets. We’re seeing now that by the time some companies list, they can seem to arrive already fully formed.

This shift is testing index construction. The impending listings from the likes of SpaceX, OpenAI and Anthropic have prompted index providers to revisit how quickly very large companies making initial public offerings (IPOs) should enter major benchmarks. Some index providers, including FTSE Russell and Nasdaq, have been racing to ensure benchmarks can capture the next generation of large public listings. Others, including S&P Dow Jones Indices, have preferred to keep established guardrails in place, maintaining a more deliberate approach to eligibility and inclusion.

In our view, this diversity of approaches is healthy. Index providers are trying to balance two important goals: reflecting the investable market as it evolves, while maintaining liquidity, stability and transparent rules. There is no single correct answer. A benchmark that moves too slowly may miss important changes in the economy. A benchmark that moves too quickly may expose investors to companies before trading history, float and fundamentals are well established.

An overlooked aspect of benchmark construction is that headline valuations and index weights are not the same thing. Most major equity indexes rely on free-float-adjusted market capitalization, which means they consider the shares actually available for public trading. FTSE Russell’s own preliminary analysis of SpaceX assumed a total market capitalization of US$1.5 trillion but available market capitalization of about US$70 billion, producing estimated weights of only 0.11% in the Russell 1000 Index and 0.08% in the FTSE GEIS All-World Developed Index.¹

Exhibit 1: Size Isn’t Everything: Free Float Shapes Initial Index Weights

Sources: Morningstar, Bloomberg, Reuters, CNBC, company announcements, public filings and Franklin Templeton analysis. As of June 2026. Valuations are approximate and based on publicly reported estimates as of June 2026.

A company may dominate headlines yet enter a broad index with a relatively modest initial footprint. Over time, lockup restrictions—which typically prevent founders, employees and early investors from selling shares immediately after an IPO—expire, allowing more shares to enter the public market and potentially increasing the company's index weight.

Another question investors may not have considered is whether these listings automatically make indexes more growth oriented. At first glance, the answer might seem like a no-brainer. Many of these companies operate in areas such as artificial intelligence (AI), aerospace and cloud infrastructure. Yet index construction is often more nuanced than headlines suggest.

FTSE Russell’s treatment illustrates this. Fast-entry IPOs have generally inherited the style characteristics of their assigned subsector until company fundamentals become available. However, the index provider has also acknowledged that relying solely on industry averages could create what it calls “market misrepresentation,” leaving room for alternative treatment in certain cases. For SpaceX, FTSE’s preliminary classification pointed to telecommunications, where the subsector average was 18% growth and 82% value.²

That may surprise investors who instinctively view anything rocket-fueled as growth. But it is a useful reminder: Index investing is rules-based, not headline-based. Style indexes do not simply ask whether a company feels innovative. They evaluate characteristics such as valuation, earnings, growth metrics and industry classification. As more mature private-market companies list, some may challenge traditional style frameworks.

This is where broader portfolio implications emerge. Broad-market index ETFs remain efficient, tactical tools for gaining diversified equity exposure, and country or style ETFs can help investors express more targeted views. But indexes are not static. New companies enter, sector weights shift, float changes, classifications evolve and concentrations emerge. Index exposure is therefore not necessarily something investors should set and forget.

We believe the next wave of large public listings will make “know what you own” more important, not less. The IPO may grab headlines. The lasting story may be how these companies reshape benchmark exposure over time.