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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www.barchart.com 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.
www.barchart.com 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.
www.barchart.com XTL has enjoyed a parabolic melt-up, rising from a 52-week low of roughly $100 to trade near the $225 mark. Technically, this vertical trajectory has pushed the ETF’s holdings far above their historical moving averages, leaving it completely detached from traditional price support.
The SpaceX IPO story is a brilliant marketing narrative, but as an investment strategy, chasing XTL at these heights is an extreme gamble.
When a sector’s valuation multiple expands based on a private-market “halo effect” rather than organic sales growth, the stage is set for a massive mean-reversion event.
XTL has flown too close to the sun. When the speculative fever breaks, the descent will be swift, and the spill will likely catch a lot of late-stage retail buyers completely off guard. The SpaceX IPO is both a triumph of human ambition in that space exploration to this degree has been decades in the making. But don’t be surprised if the stocks in this industry eventually come back to earth, like even the most advanced rockets do.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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