"Rather not profit than get involved with Musk" — U.S. retail investors begin to "steer clear" of SpaceX

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As SpaceX was officially included in mainstream indices such as the Nasdaq 100 this week, a value-driven “mine-sweeping” movement of investment portfolios is quietly spreading among US retail investors.

After completing the largest IPO in history this June, SpaceX’s stock price surged and then fell back by more than 24%. But what worries some investors even more than the price volatility itself is the passive investment mechanism forcibly stuffing this company into millions of retirement accounts. According to Bloomberg, several index providers have specifically revised relevant rules to accelerate SpaceX's inclusion, which has sparked widespread criticism. Meanwhile, at least $5.4 billion of index-tracking funds will be buying the stock passively, providing support for the pressured share price.

For those investors who see Musk as both a political and business risk, SpaceX’s inclusion poses an unavoidable dilemma—either accept the passive holding or actively restructure one’s portfolio, even at higher costs or the expense of potential returns.

From Reddit to TikTok, the "mine-sweeping" sentiment spreads into a movement

According to a recent Bloomberg report, Philadelphia software engineer Christopher Bejnar spent months poring over ETF prospectuses word by word, consulting financial advisors, transferring $50,000 into European index funds, and buying stocks of SpaceX competitor Rocket Lab Corp—all for one purpose: to make his $1 million portfolio completely insulated from SpaceX.

"Even if my exposure is only one-tenth of one percent, I don’t want any of that money going to him," Bejnar said. He listed Musk’s political radicalism and SpaceX’s reliance on heavy borrowing to prop up "unproven technological visions" as his main concerns.

This sentiment is not unique. On Reddit’s r/investing, r/ETFs, and r/EnoughMuskSpam, there has been a surge of posts discussing how to avoid SpaceX exposure, with one post titled "How to avoid investing in Musk’s companies" garnering enormous discussion.

Thirty-year-old data analyst David Greer had already moved his $650,000 retirement savings from US index funds to international index funds back in April. He characterizes Musk as "the Trump of tech" and said that SpaceX’s listing was "the last straw that broke the camel’s back."

Musk’s assets are huge, making "evasion" costly

Investors critical of Musk face a structural dilemma: the market cap of his companies has become almost impossible to avoid. Tesla currently holds about a 2% weight in the Vanguard S&P 500 ETF (VOO) and over 3% in the Invesco QQQ Trust. SpaceX’s market value is about $2.1 trillion, about 1.4 times that of Tesla, and joined the ranks of top US stocks almost overnight after its IPO.

With SpaceX officially included in the Nasdaq 100 at this week’s close—having previously been added to FTSE Russell and MSCI indices—billions of dollars in passive funds are mechanically buying the stock. Emily Green, director of wealth management at the firm Ellevest, said she has received a large volume of client inquiries about excluding SpaceX. "If it weren’t for him, we wouldn’t be having this conversation," she said, likening the current anti-Musk sentiment to the public backlash Meta faced after the 2016 election.

Direct indexing becomes a mainstream "mine-sweeping" tool

Facing the "forced inclusion" from passive investing mechanisms, some investors are switching to direct indexing—buying a basket of individual stocks to replicate index performance while excluding companies they don’t want to hold. Ellevest builds about 300-stock portfolios for such clients, covering large, mid, and small-cap US and developed market international equities, allowing for deep customization.

Green said that excluding one or two stocks from a broad portfolio usually doesn’t have a significant impact on overall performance; previously, clients choosing to avoid Tesla have "accepted" its price increases calmly.

Bejnar, with help from a financial advisor, transferred some funds from his brokerage account to an ETF subset that excludes SpaceX. His advisor warned him that if SpaceX continues to rise and is included in more benchmark indices, it will become increasingly hard to avoid. But Bejnar is determined: "No matter how well SpaceX performs, I will never regret not buying it."

The passive investing wave amplifies "winner-take-all" effect

Behind this controversy lies a fundamental contradiction of the era dominated by passive investing. Omar Qureshi, managing director at Hightower Signature Wealth, points out that as more retirement savings automatically flow into passively managed funds, index inclusion itself has become a highly valuable "privilege."

"If you’re a big player, you’re guaranteed to get capital inflow," said Qureshi. "Capital inflow drives performance, performance then attracts more money into the index, forming a self-reinforcing cycle." Although he personally avoids SpaceX due to his negative view of Musk, as a financial advisor he still assisted clients in participating in the IPO.

Bejnar is dissatisfied with the revisions to index rules. He believes SpaceX will not be included in the S&P 500 in the short term—the index requires a company to be public for 12 months, as well as meeting profit and public float requirements—and considers the $25 billion in debt financing completed by SpaceX at the end of June as nothing more than "robbing Peter to pay Paul" for Musk’s wider business empire.

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