Index funds are changing: what's actually happening and what it means for you
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This is the full breakdown I promised.
The short version is that three of the largest private companies in the world are going public in 2026, and their sheer size has forced the organisations that run the world's most important stock market indices to ask questions they've never had to ask before. They’ve each come to different conclusions so, depending on which index fund you hold, the next few years could be wildly different for you!
Let's go through it properly.
How Index Inclusion Actually Works
An index fund doesn’t decide what to buy - it follows what it’s told by an index provider, which is a separate organisation whose job it is to maintain a list of companies and the rules for getting on it.
The S&P 500 index is maintained by the S&P Dow Jones Indices. The Nasdaq 100 is run by Nasdaq. The Russell indices (Russell 1000, Russell 2000 and so on) are run by FTSE Russell. These aren’t the same as funds - they set the rules that the funds follow and there can be many different funds based on one index. For example UBS S&P 500 Index Fund, HSBC American Index Class C and Vanguard S&P 500 UCITS ETF are all based on the S&P 500.
When a company joins an index, every fund which tracks that index automatically has to buy it. Usually that would be proportionally - so if it’s a big company they have to buy a lot but sometimes they follow ‘equal-weighting’ so they’re only obliged to buy as much as they have in other companies. In order to buy proportionally (and to gather the finances often), funds are also forced to sell their other holdings.
This process is called forced buying and when a company is valued at $1.75 trillion, like SpaceX, all of that buying and selling becomes a significant market event in itself.
Rules to join indices have historically been strict:
The S&P 500 requires a company to have been publicly listed for at least 12 months, to have reported four consecutive quarters of positive GAAP* profit, and to have a meaningful proportion of its shares available to trade (the ‘float’).
The Nasdaq 100 has traditionally required two years of public listing.
The Russell indices have their own float thresholds.
*GAAP accounting is ‘generally accepted accounting practices and it a specific way of accounting which is intended to prevent companies from using fancy tricks to hide money or debt. It gives a level playing field.
These rules were designed for a different era of company building - where businesses grew up in public by listing small and becoming larger gradually which kept every-day investors safe(r). That’s not what’s happening with the current wave of mega-IPOs.
Why The Old Rules Don't Fit Anymore
SpaceX has been raising private money for over two decades. OpenAI has been funded through enormous private rounds, primarily from Microsoft. Anthropic (the company behind the AI assistant Claude) has raised tens of billions without a single public listing.
By the time companies like these go public, they're already enormous. SpaceX is expected to list at around $1.75 trillion, OpenAI and Anthropic are each expected to debut at valuations between $1 trillion and $2 trillion which puts all three among the dozen largest companies in the world from day one of trading. Hardly starting small and growing in the index.
None of them have posted a profit so far however.
Under the old rules, none of them would appear in major indices for at least a year after the IPO. The people who benefited from any price movement in that period would be early private investors - venture capitalists and institutional funds - not the ordinary investors who put money into index funds each month.
So the argument for changing the rules is to make sure that the funds are actually tracking the market and making sure that everybody can benefit from the huge gains to be made.
One problem is that there might also be huge losses.
I also think it’s worth pointing out here that if you are invested in say, and index fund which tracks the S&P 500 when you do, through Microsoft, already have exposure to some of the incredible growth of OpenAI.
What Each Index Provider Decided
Earlier in 2026, the three major index providers each consulted on whether to change their rules regarding this situation and they came to different conclusions.
The Nasdaq 100: Fast Track Approved
As of 1 May 2026, the Nasdaq 100 has a new rule - any newly listed company that ranks in the top 40 by market capitalisation can enter the index after just 15 trading days. The minimum float requirement has been removed.
This means SpaceX - expected to IPO on 12 June at $1.75 trillion - could be inside the Nasdaq 100 by late June or early July. Funds that track the Nasdaq 100, including the widely-held EQQQ NASDAQ-100 UCITS ETF will have to buy it automatically.
To fund that purchase, those same funds will have to sell proportional slices of everything they already hold: Nvidia, Apple, Microsoft, Amazon and Alphabet for example. The rebalance itself would be a significant market moment, with an estimated $22-27 billion in automatic buying expected across Nasdaq 100 and Russell-tracking funds combined.
The S&P 500: Fast Track Rejected
This is the big one because it’s probably the index that most people have heard of. In May 2026, S&P Dow Jones Indices opened a consultation proposing to reduce the seasoning window from 12 months to 6 months for large IPOs and to consider waiving the four-quarter profitability test. On 4 June, they published their decision which was that they would make no changes.
The official statement confirmed that no exceptions to the financial viability screens, seasoning period, or minimum investable weight factor requirements will be made on the basis of market capitalisation alone. In other words, you can't spend twenty years raising private money, arrive as the largest IPO in history and skip the queue.
SpaceX will not enter the S&P 500 until at least mid-2027 - and only then if it can demonstrate four quarters of GAAP profitability (as of Q1 2026, SpaceX reported a GAAP loss of $4.28 billion). OpenAI and Anthropic are similarly loss-making (Anthropic is expected to reach its first quarterly profit this quarter, but four consecutive quarters is still a way off).
If you hold a standard S&P 500 tracker - an index fund or one of the many workplace pension defaults which use index funds as their base - you will not own any of these companies in 2026.
FTSE Russell: Broadly On Track
FTSE Russell has relaxed its float thresholds. SpaceX is expected to enter the Russell 1000 index at the September or December 2026 reconstitution. Funds that use the CRSP index as their benchmark - could add SpaceX as early as five trading days after its IPO.
The Concentration Problem That Was Already There
This is the bigger conversation sitting underneath all of this actually.
Most people invest in index funds because they want diversification. The whole pitch is that you're not betting on any one company - you're instead buying a piece of the whole market. And that logic is sound. But the market has changed shape in ways that aren't always obvious from the outside.
The ten largest companies in the S&P 500 now account for around 40% of its total value. Semiconductor stocks alone represent over 23% of total market capitalisation. The ‘Magnificent Seven’ - Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla - have driven an outsized proportion of the index's returns for many years. Just three companies (Alphabet, Amazon and Meta) account for approximately 70% of the increase in earnings expectations for the S&P 500 for 2026. And all of these companies are heavily invested in or connected to AI.
This means your ‘diversified’ index fund is, in practice, a significant bet on the AI infrastructure boom and continued high valuations among a handful of American tech giants. If those companies have a bad few years, your index fund will feel it, and feel it more than a genuinely diversified portfolio would.
Adding trillion-dollar AI companies to already-concentrated indices would push this further. Some analysts estimate that once SpaceX and OpenAI are eventually included in the S&P 500, the top ten holdings could represent close to half the index's total weight.
None of this means index funds are bad necessarily. They're still one of the best tools available to ordinary investors. But there's a difference between knowing what you own and just assuming the word ‘diversified’ does all the work.
What This Means In Practice For You
The practical implications depend almost entirely on which fund you're actually in.
If you hold a Nasdaq 100 tracker, you'll get SpaceX exposure very quickly - potentially within a month of its IPO. The Nasdaq 100 is already heavily concentrated in technology companies (it’s an index which follows the 100 biggest non-financial companies on the exchange) and SpaceX will be a significant addition. You are making a meaningful bet on AI and the commercial space industry, on top of the existing concentration in mega-cap tech.
If you hold a standard S&P 500 tracker, you won't own SpaceX, OpenAI or Anthropic this year. You may see the Nasdaq 100 outperform if SpaceX does well - though the reverse is equally possible. Your fund will remain more insulated from first-year IPO volatility, which isn't necessarily a bad thing.
If you hold a total market fund, you could get SpaceX exposure within days of its IPO, since the CRSP index operates differently from S&P's rules.
If concentration risk is genuinely bothering you, then ‘equal-weight’ S&P 500 ETFs distribute each company's weighting equally across all 500 constituents, regardless of size. This tilts you away from mega-cap tech dominance and towards the smaller companies. It doesn't protect you from market downturns, but it does mean you're not as reliant on a handful of companies.
Should You Change Anything?
This is not financial advice, of course, but for the vast majority of people who are investing for the long term - pension, ISA, slow and steady - the honest answer right now is, probably not.
The key principle of long-term index investing is that you stay in, keep contributing and you try not to react to every market development. These structural changes don't alter that logic. The S&P 500's decision to hold its rules firm is arguably a protection of the index's integrity - a recognition that giant loss-making companies shouldn't be able to muscle their way in simply because they're enormous.
What this moment is good for is a check-in. When did you last look at what your fund actually tracks? Do you know the difference between an S&P 500 tracker and a total market fund? Is your pension default a market-cap weighted index and do you know how concentrated it is?
You don't need to have all the answers to that, but knowing what you own is the foundation of every good financial decision. If any of this has made you realise you've been a bit hazy on the details, that’s okay, it’s just information and that’s only ever a good thing.
The Very Short Version
Three of the world's largest private companies (SpaceX, OpenAI, Anthropic) are going public in 2026.
Index providers have different rules for how quickly they'll be added to major indices.
The Nasdaq 100 is moving fast - SpaceX could be in there by late June.
The S&P 500 is holding firm - none of these companies will appear until 2027 at the earliest.
Your index fund was already more concentrated in big tech than most people realise.
For long-term investors, the right response is probably calm awareness rather than action.
Money stuff can feel overwhelming when you're not sure what questions to even ask.
Coaching isn't about being told what to do with your money - it's about building the confidence and knowledge to make your own decisions. If you'd like a space to work through what financial security actually looks like for you, come and find me right here.
Love Eleanor. xxx
