Some companies have large shareholders who do not intend to sell their shares publicly. They include family or founding owners, company executives, private equity investors, and, sometimes, other public companies.
Mathematically, this reduces the shares available to investors. So that all investors have an equal chance of owning all the stocks in an index, most modern indices include only “free-float” adjusted market cap.
Often, a stock is required to have a minimum free float to qualify to be added to the index. In fact, most index stocks have a float of more than 80%.
We have observed that recent initial public offerings (IPOs) have lower free float compared to historical norms. Today, we’ll take a look at recent IPO float trends as well as typical float levels for major US indices.
Less floats are being seen in new IPOs
Data indicates that even with some of the largest IPOs, we are seeing companies list with lower floats.
Sometimes, IPO companies have a lock-up period to prevent their shares from being available in the market. While the most common lock up period lasts 180 days, sometimes in cases of D-SPACs or for private equity investors the lock up can exceed two years. Other companies may IPO with only a small capital raise, leaving the founding shareholders with the majority of the shares.
In Chart 1, we compare float and index inclusion by listing year for companies listed in 2023, 2024 and 2025. For listed companies in 2025:
- The float of 31% is less than 30% of their total outstanding shares (vs. 22% of listed companies in 2023).
- Only 29% of companies have float share above 80% (vs. 41% of listed companies in 2023).
- Overall, their average float is 24% lower than that of listed companies in 2023.
- And their float is low across all market caps (bubble size).
Using colors, we can also see the effect of increasing float over time on index inclusion. Only 24% of 2025 listings (vs. 32% of 2024 listings) are in the Russell 3000 index.
Chart 1: Float shares by year of first trading
index inclusion float rule
In Table 1, we show the minimum free float thresholds per index.
While minimum free floats are 5% (Russell Index) to 15% (MSCI), each index removes excess shares when calculating free float for index eligibility. This means that for an IPO, a company may think that floating 15% of its shares for an IPO is enough to fast-track index inclusion. However, an index provider may also count things like the government, employee share plans, large individual investor holdings, and sovereign wealth funds as non-float holders.
Table 1: Minimum free float required for various index inclusion rules
High float index helps in inclusion
If we look at current index members by free float, we see that most US index stocks have more than 90% float (Chart 2). In fact, we see a float of at least 90% in:
- 75% of Nasdaq-100® stocks.
- 89% of S&P 500 stocks.
- 81% of Russell 1000 stocks.
- 47% of Russell 2000 stocks.
However 65% of the Russell 2000 have 80% or more float. This compares with only 19% of “other” category stocks – those not included in any of the three major indices – which have more than 90% of the float.
Chart 2: Most stocks in an index float more than 90%
Stocks with low float also appear to trade lower
You might think that stocks with a lower float might have higher free-float turnover because investors try to buy larger positions in a smaller float company without realizing that there are fewer shares available to trade.
However, the data shows that lower float has no impact on turnover. In other words, there is no indication that companies with low float trade less than a similar market cap company with high float.
In Chart 3, we show annual free-float turnover (average daily volume of each stock, times 252 days, divided by available float shares). This tells us how many times all the float shares of a company will trade in a year.
Chart 3: Float and turnover do not appear to be related
Most stocks cluster between 80%-100% float and 1x-5x annualized turnover.
Interestingly, almost all index constituent stocks (colored circles) fall in this range while non-index stocks (gray circles) have a wide turnover range (0.1 to more than 5000).
Free float is important for companies that want index investors
Listing with sufficient free float helps ensure that the company will be indexable, as most indexes require a minimum free-float level. This benefits issuers in the long run because index investors are large and long-term holders of their stocks.
Interestingly, companies with low float have less turnover than a similarly sized company with high float. Investors seem to scale their buying and trading activities to free-float shares. This should also mean that when small buyers buy low float stocks there is no major impact on them.
