The SpaceX initial public offering has captured a lot of attention over the last month, and every day retirement investors have opinions in a way that I can’t recall happening with any other individual company in a long time. Opinions have been polarized: some folks believe in the company and want to know how to own it. Others want to avoid owning it, some for financial reasons and some for political reasons.
How SpaceX Fits Into Your SOM Investment Options
Here’s a breakdown of what to expect in the mutual funds that invest in large company stocks available within the State of Michigan retirement plan:
- The State Street Target Retirement Funds will not likely have any exposure to SpaceX until sometime in 2027. These funds base their large-company US stock allocation on the S&P 500 index, and the inclusion rules for that index require the company to meet certain minimum requirements before the stock becomes part of the mix. At some point we expect SpaceX to enter the S&P 500, but the rules for the index would also mean the allocation to the company is small. These target date funds are also diversified portfolios that cover more than just large US companies, with the portion that tracks the S&P 500 being just part of the mix. Overall, the impact of SpaceX directly on these funds is likely to remain small well into the future.
- The State Street S&P 500 Index, as the name implies, tracks the S&P 500 directly, so the same analysis applies here. The fund will eventually own SpaceX when the company achieves certain benchmarks, probably sometime next year.
The Actively Managed Funds
The other funds in the State of Michigan retirement plan that invest in large US company stocks are what we refer to as active funds. Rather than track an index like the funds listed above, they have managers choosing what to buy within their category based on their own investment philosophy. So they aren’t as predictable as index funds, but we can make some assumptions about their likely exposure based on what we know about them:
- The Dodge and Cox Stock Fund is not likely to own SpaceX, as they focus on value stocks, the opposite philosophy of purchasing a high-flying technology company right after it goes public. The odds are low that SpaceX will show up in this fund anytime soon.
- The Jennison Large Cap Growth Fund, on the other hand, focuses on the sort of company that SpaceX exemplifies, a story about future growth and development rather than current value. Within the State of Michigan plan, this is the fund most likely to own SpaceX in a meaningful amount. If you want to own SpaceX, this fund is your best option within the plan without using the plan’s brokerage options available through Charles Schwab.
Note that for actively managed funds, the managers only report their holdings quarterly, and often it’s difficult to find information beyond their top holdings, so knowing what these funds do and don’t hold day to day is impossible.
The remaining stock funds in the State of Michigan plan are not likely to own SpaceX because of their international focus or because they invest in smaller companies.
What About the Next AI IPO?
This framework should help you understand whether you’ll own SpaceX stock in your retirement plan, and the same basic approach should work for upcoming AI-related public offerings, since they’re likely to be similar situations.
Our Approach
We don’t make judgment calls on individual companies or chase short-term headlines. Our approach is to build portfolios around long-term economic outcomes using broad, index-based funds, and if a stock belongs in the index we follow, it ends up in the portfolio. We’re not going out of our way to own SpaceX or the next AI stock, but we’re not avoiding them either.
For State of Michigan clients, the plan’s brokerage window with Charles Schwab gives us room to build portfolios according to that philosophy and tailor them to what a specific client needs, rather than being limited to the standard fund lineup.
If you’re wondering whether these stocks belong in your retirement portfolio, have any other questions about the State of Michigan retirement plan, or any broad questions about retirement, please reach out to us.
