On the surface, the SPDR S&P Telecom ETF (XTL) looks like the ultimate way to play the SpaceX IPO. With the fund up more than 120% over the past 12 months, the mainstream narrative is simple: space-based telecom is the next frontier, and XTL is the rocket ship taking you there.
And imagine when SpaceX officially becomes a holding in the ETF, and likely a top one by weighting at that! Sounds like a blast. Or, the top of the market for this set of stocks. Let’s explore.
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XTL is only trading in the low-20x range in terms of its trailing price-earnings ratio. But remember that this ETF is a broad mix of telecom stocks. Not a dedicated space station for investors.
When you pop the hood on XTL, it becomes clear that the story has flown much too high, much too fast. Its stretched metrics suggest it is severely overdue for a violent spill.
The SpaceX IPO Illusion
The bullish euphoria surrounding XTL stems from the idea that the upcoming SpaceX listing will permanently revalue global communication infrastructure. It is levitating some of the current ETF holdings, as if the names and industry classifications were enough to get them by. Sadly (for us old timers anyway), that often IS enough… for a while.
Because private-market hype is bleeding into anything with a satellite or advanced network background, money has flooded into telecom equipment and tech service subsectors.
However, there is a fundamental structural disconnect here. First, there’s the equal-weighted reality. XTL tracks an equal-weighted index of about 40 holdings. This means it doesn’t give a massive concentration to single high-flying tech names. Instead, it dilutes cash evenly across the board.
Because of its equal-weighted structure, you aren’t just buying the future of space, you are buying a cross-section of old-school tech and highly cyclical infrastructure players.
That makes this a bit of a deceptive holdings table, even though it is accurate. When the top holdings go up by so much in between rebalancing periods, you can get some 4%-plus positions.
Technically, this chart is stretched. At best. More likely, it is at risk of seeing one-third of its value drop within the next 12 months.
