The unicorns have grown and are galloping towards the public market with disruptive potential. The most desirable AI and technology companies have remained private for far longer than during prior technology buildouts, increasing the anticipation and impact of the current wave of listings. Given the growing importance of indexing and ETFs, understanding changes to index inclusion rules—as well as the differences among major indexes—will likely be critical to explaining performance divergences over the coming year.

Key Takeaways

• Passive Indexes may not be as passive as investors think. It is important to understand the nuances of index construction and how they impact passive investment vehicles designed to replicate them.
• Index providers have reassessed their inclusion rules in response to a surge of highly anticipated public offerings. These changes may result in performance divergences amongst various benchmarks used to represent the broad market.
• Broad market index inclusion is likely to be relatively limited, as high insider ownership reduces the available free float.