An exchange-traded fund (ETF) from a relatively obscure asset manager, ERShares, has captured the attention of online traders by offering something unique in the investment landscape: direct exposure to Elon Musk’s SpaceX. According to Bloomberg, the ERShares Private-Public Crossover ETF (XOVR) has seen a significant influx of over $120 million in investments since it added SpaceX to its portfolio in December, marking its best performance period since its inception seven years ago, now managing assets worth $250 million.
The allure of XOVR lies in its pioneering approach to combine investments in both public and private sectors, a strategy that has become increasingly popular among major money managers like BlackRock (BLK) and Invesco (IVZ) who are also vying to democratize access to private markets through ETFs. However, and as B’berg notes, XOVR stands out as the sole US-listed ETF holding SpaceX, providing smaller investors a rare glimpse into one of the most coveted private companies globally.
SpaceX’s shares, not publicly traded, are typically held by private equity investors, venture capitalists, or company insiders, creating a significant barrier to entry for most investors. XOVR circumvents this by owning SpaceX shares through a special purpose vehicle, with the specifics of this arrangement kept under wraps by ERShares founder Joel Shulman.
Since its strategic pivot in August to include private companies, SpaceX has become XOVR’s top holding, with an 8.1% allocation. This move aligns with the fund’s new mandate to invest in entrepreneurial companies, both public and private, though it must adhere to SEC regulations which cap illiquid investments at 15% of the fund’s total.
However, investing in illiquid assets like SpaceX comes with its complexities. The ETF could trade at a premium or discount to its net asset value, complicating straightforward investment calculations. With SpaceX’s valuation recently hitting $350 billion after an insider share sale, the daily valuation of these shares within the ETF framework remains opaque, raising questions about how the fund manages creations and redemptions.
As XOVR grows, maintaining its SpaceX stake could become challenging. ETF analyst Dave Nadig told the publication that if the fund cannot acquire additional SpaceX shares, the stake could dilute, diminishing the benefits for new investors.
Despite these challenges, XOVR has sparked interest among retail traders, evidenced by the numerous small buy orders and discussions in niche investment communities on platforms like Reddit. Shulman emphasizes the inequity of public investors being excluded from significant growth opportunities like SpaceX, which has seen its valuation soar from $100 billion to $350 billion in just a few years.
Shulman has also indicated on Bloomberg’s ETF IQ that while the fund’s public stocks undergo quarterly rebalancing, its approach to private holdings, including SpaceX, will be more opportunistic, with plans to potentially increase its SpaceX investment. This strategy reflects a belief in long-term holding, offering investors a unique avenue to participate in the growth of private enterprises typically out of reach.
Thus, XOVR not only represents a novel investment vehicle but also challenges the traditional boundaries between public and private markets, potentially reshaping how retail investors engage with high-growth, private companies.
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