A significant surge of interest from individual investors aiming to acquire a stake in SpaceX before its anticipated public offering has thrust the ERShares Private-Public Crossover ETF (ticker XOVR) into the financial spotlight. This phenomenon underscores the widespread retail enthusiasm for Elon Musk's various business ventures and highlights the intense competition for exposure to private companies. Since December 8, the XOVR ETF has attracted over $470 million in inflows, an amount exceeding half of its total assets, as investors eagerly seek to participate in what is projected to be one of the largest initial public offerings in history.

The primary catalyst for this heightened investor attention was a recent Bloomberg News report, published earlier this month, indicating that Musk's rocket company is targeting a public listing in 2026. This potential IPO could raise more than $30 billion and value SpaceX at an astounding $1.5 trillion. The XOVR exchange-traded fund has drawn particular scrutiny because it holds a fractional stake in SpaceX through a special-purpose vehicle. According to an analysis of Bloomberg-compiled data by Bloomberg Intelligence's Breanne Dougherty, this potentially makes XOVR the sole US-listed ETF offering such exposure, effectively transforming the fund, originally launched in 2017, into a speculative instrument for gaining access to 'Musk Inc.'

Bloomberg Intelligence analysts Dougherty and Charles Bond noted, "This surge is likely linked to SpaceX stating a 2026 IPO target." They further elaborated that merely the suggestion of a SpaceX IPO, now tentatively scheduled for late 2026, resonates with a trifecta of investor obsessions: "breakthrough innovation," a privately held startup valued at over $10 billion, and a "revived IPO pulse." XOVR first gained its rare exposure to the Musk-led company via a special purpose vehicle in December 2024, an unusual move for an exchange-traded fund. At that time, ERShares, the ETF's issuer, reported a total investment exceeding $20 million in SpaceX, representing approximately 12% of the ETF’s assets, as detailed in a press release. This came after the fund firm rebranded in August 2024 and expanded its investment mandate to include private entities alongside its existing focus on public entrepreneurial ventures.

However, as substantial capital continued to flow into the fund, the proportion of the SpaceX holding diminished to about 4% of its total assets, as per data compiled by Bloomberg. This re-positioned SpaceX as XOVR’s fourth-largest holding, following Nvidia Corp., Meta Platforms Inc., and Maplebear Inc. ERShares representatives did not respond to inquiries regarding plans to increase its SpaceX stake, its valuation methods for the position, or the implications once the rocket company goes public.

Jeffrey Ptak, a managing director at Morningstar, commented that the SpaceX position has become such a minor component of the portfolio that any potential increase in its marked value, even if substantial as many investors anticipate, would have only a marginal impact on the fund's overall performance. He added that since the SpaceX holding remains static while the fund continues to attract new cash, the majority of these inflows are likely being directed into publicly traded stocks, further diluting SpaceX’s percentage within the portfolio.

Dave Nadig, president and director of research at ETF.com, pointed out that the ETF values its current stake at $185 per share, a figure significantly below recent prices observed in secondary markets. For instance, a recent secondary offering for SpaceX shares was set at $420 per share. This artificially low valuation helps maintain the position as small, which previously assisted the ETF in adhering to concentration limits. However, it now prevents the fund from adding to its position without first adjusting that marked price. Nadig suggested that if SpaceX were to go public around the $420 per-share price, the fund’s existing stake would experience a notable increase. Marking the position to market, he estimated, could boost the fund's net asset value by roughly 4%. Despite this potential gain, Nadig cautioned that investors buying into the ETF during its recent surge might not capture the full benefit, as sellers could emerge after the IPO, potentially erasing much of the initial boost. He succinctly concluded, "This is all a very long way of saying: there is no free lunch. The more this looks like ‘free money’ the less likely it actually will be.”

While some proponents advocate that ETFs can hold a wide array of assets, Morningstar’s Ptak argues that certain instruments may be best excluded. He stated, “It’s incongruous to hold these kinds of instruments in a daily liquidity vehicle like an ETF,” noting the situation is “Rife with confusion, which you’re seeing writ large right now, with people diving into XOVR in the belief they’ll see some huge payoff from SpaceX.”