Calling the IPO the “anti-Robin Hood” Craig Basinger says that asset flows can be a useful metric for advisors to watch
There are plenty of IPOs that started off rough, that saw a much hyped company pull back from its initial highs. Even Meta (then Facebook) had a rough entry onto public markets before it became the market giant it is today. In that context, SpaceX’s roughly 12 per cent drop from its IPO price and roughly 30 per cent drop from its post-IPO peak to today shouldn’t be seen as much of an aberration. What makes SpaceX notable, however, is how its inclusion on major indices caused a degree of capital flow, from the average investor to the ultra-rich.
Craig Basinger, Chief Market Strategist at Purpose Investments in Toronto, recently penned a paper calling SpaceX the “anti-Robin Hood”. Where Robin Hood famously stole from the rich to give to the poor, SpaceX has reversed the process. Its inclusion in key indexes like the Nasdaq 100 has forced passive funds to buy shares, offering a massive pool of liquidity to the “rich” being SpaceX employees, private investors, sovereign wealth funds, and pension funds. That liquidity is being provided by the “poor” equity investors, who Basinger accepts are more affluent than poor by any absolute measure. Nevertheless, he sees this shift as a worthwhile dynamic for investors to understand, especially as other major tech IPOs look set for future years.
“I don’t know what the right or wrong answer is, whether an index should include something now or include something later or how it should work. I totally understand changing some of their inclusion rules makes sense because times have changed. Companies are staying private longer. From our perspective, it just seemed that it was being a bit manufactured,” Basinger says. “It seemed like the liquidity being created by these ETFs adding these mega-cap names into the index very quickly was creating a very easy off-ramp for wealthier people who have just made a whole bunch of money.”
The reality of new index rules
Basinger acknowledges that the inclusion of SpaceX on the Nasdaq 100 far sooner than old rules would have allowed isn’t purely a product of regulatory capture. The fact that companies stay private for longer and can access huge amounts of capital from private investors makes late-stage IPOs far more likely to occur in future. When those companies IPO at valuations in the trillions, they become hard to ignore for index providers. At the same time, however, he notes that the S&P 500 rejected the idea of including SpaceX, perhaps because the index has consistently outperformed active managers over the past 20 years using its existing rules.
Basinger says he didn’t write this paper to prompt calls for social justice. Instead, he says the way that money flows through index exposures to certain companies can prove instructive for investors. There are risks that come when a cohort of private investors and shareholders are given sudden access to liquidity after five or ten years locked up in an investment. Just as there are dynamics introduced when money flows into new or different asset classes or geographies. Basinger highlights the performance of Canadian markets recently as powered by global capital flows seeking returns from sectors and geographies distinct from the tech-dominated US market.
Even if SpaceX now only constitutes little more than 1 per cent of the Nasdaq 100, its inclusion also points to another key narrative surrounding index investing now: concentration risk. Key US indexes like the S&P 500 are becoming highly concentrated in mega-cap technology names, often tied to the AI theme. Basinger acknowledges, however, that there are no risk controls in an index and there is nothing inherently wrong with a major index becoming highly concentrated. The mistakes occur when investors believe that what they own is more diversified than it is.
“Sometimes those indices will be very skewed in certain areas and lacking in others. And then it’s the job of the advisor or portfolio manager to make sure that if they’re using these tools, that they are knowledgeable about the exposures and/or the concentration they’re taking,” Basinger says.
Finding opportunities and communicating flows
For Basinger, as important as flows are to understand, he believes advisors don’t want to be too opportunistic and chase trends. Instead, he sees flows as a potential indicator of where certain themes or narratives are becoming overbought. He offers the example of the so-called “SaaSpocalypse” which posited that AI was going to destroy software businesses with subscription models. The result was a huge buying opportunity in software names, many of whom have since recovered from their lows. Those mispricing opportunities can be areas where an advisor can add value.
At the same time, the news around shifting index rules for a company owned by the richest man on earth, combined with other news about alleged insider trading, polymarket bets on conflicts, and other pieces of news like that can create a feeling among clients that the deck is stacked against them. While Basinger acknowledges that there may be frustrations out there, he says that the realities of this bull market should paper over those cracks for investors, for now.
“Enough people don’t care because everybody’s making money. And that’s typically how these things work. And then when people stop making money, people start to care all of a sudden about things they didn’t care about before. And that’s when people get pulled in front of Congress to do some explaining. So as long as markets keep going up, you know, the outcry is pretty muted,” Basinger says. “It’s a big enough market and the vast majority of it is fair and equitable. So what’s the other alternative for growing your wealth? You can say maybe this isn’t a perfectly level playing field, maybe. But if people are actually earning a good return, that’s the best way for them to grow their nest egg for their retirement.”
