Now, however, these IPOs are so big that straight away they're at like rank 10, or 15 or whatever. The investors who own the S&P don't experience any of the upside when they grow from rank 500 to 10. They are only exposed to the downside (if they lose value/rank/fall out of the index) or the marginal upside if they continue performing and generating returns.
The point is that given the size of the IPOs relative to other companies, their addition to the index has a much more downside exposure than reasonable upside exposure.
I'm probably butchering my explanation here, so apologies if it sounds odd.
Sure Nasdaq100 is going to have companies like SpaceX, that is the whole point of that index. Sp500 there is no chance under current ad historical rules.
If you look at an index like the sp500 they have maybe ~18 companies join the index annually. If you look. Back over the last 4-5 years maybe 3-4 of those in totality (so out of 72 companies) had an ipo within the prior 3 years. Some of those 3 like a Kenvue were a spinoff.
You are also assuming because a company is ranked 10 in the sp500 that there is no upside. I am sure there is some interesting data around this, I know I have seen some looks for example if you invested all in on the #1 company and rebalanced as that rank changed that you would beat the sp500. I am sure there is some data that shows a combination inversely. I think it’s the wrong thesis though.
In net I don’t understand what you are saying.