This ETF Is Feasting on SpaceX Stock. It's Also a Play on a Possible Tesla Acquisition.
The Baron First Principles ETF has quickly asserted itself as the primary ETF proxy on SpaceX stock.
By Todd Shriber
Accounting for markets being closed on Friday, June 19, in observance of the Juneteenth holiday, Space Exploration Technologies (SPCX 0.97%) has just five trading days under its belt, but that's enough time for an array of exchange-traded funds (ETFs) to have gotten involved with the stock.
Just five days after the largest initial public offering (IPO) in history, 28 ETFs feature Elon Musk's reusable rockets company among their top 15 holdings. The leader of that pack is the Baron First Principles ETF (RONB +0.47%), which, as of June 17, had a 31.2% weight to SpaceX, or more than double the allocation to the fund's second-largest holding.
The $238.5 million Baron ETF debuted last December, and SpaceX is obviously a new stock, so the jury is still out on whether this is one of the best ETFs that hold SpaceX, performance-wise. Still, with that hefty weight to the hottest name in space equities, the fund is useful for investors who want exposure without an all-in commitment. If there's a rub, it's an annual fee of 1%, or $100 on a $10,000 investment. That's very high compared to many ETFs.
History and housekeeping
It's unusual for a single stock to command nearly a third of an ETF's portfolio, so it's worth examining how and why SpaceX looms so large in the Baron fund. For starters, it must be noted that this is an actively managed fund, so the managers can make large, concentrated bets if they see fit. Conversely, the passive broad-market ETFs that add the satellite stock will wait for SpaceX's market cap to rise before the shares command larger percentages of their portfolios.
History also helps explain why this ETF holds such a sizable stake in SpaceX. Ron Baron, the founder of the firm, is a friend of Musk's and has long put his money (and clients' money) where his mouth is. The money manager first invested in SpaceX in 2017, when the company was valued at just $22 billion, and subsequently participated in 27 capital raises. Baron Capital threw another $1 billion at the stock on IPO Day.
The Baron First Principles ETF isn't the firm's only ETF with SpaceX exposure. Another pair of the firm's actively managed ETFs is among the top nine ETF holders of the space stock.
Baron himself is overtly bullish on SpaceX. He sees the company's market value rising to $20 trillion and beyond a decade out, implying exponential appreciation from the current level of $2.2 trillion. If that prediction is anywhere close to accurate, investors who deploy this ETF stand to benefit.
Don't forget the Tesla angle
Leading up to and immediately following the SpaceX IPO, there's been plenty of chatter about that company potentially acquiring Tesla (TSLA 1.61%). There are no guarantees that the transaction will occur, but more than 40% Kalshi traders are betting it could be announced in March, April, or May of 2027.
Speculation about a SpaceX/Tesla marriage is relevant to discussing the Baron ETF because Musk's electric vehicle company is the fund's second-largest holding, accounting for almost 12% of the portfolio.
Interestingly, Baron's affinity for Musk-backed companies started with Tesla, as he invested in the company in 2014 and 2016. While Baron reduced client holdings in Tesla, it's estimated 40% of personal net worth is tied to that stock.
Putting it all together, this ETF is a highly concentrated bet on two Musk stocks. Most ETFs don't assign 40%-plus of their weights to just two companies so investors seeking a diverse roster may want to take a pass on the Baron ETF. On the other hand, risk-tolerant market participants that want to double-dip with Musk's two public companies without owning either outright may want to give this fund a closer look.