A lot of wild things happened in 2020, but from an investor’s perspective, the rise of the SPAC or Special Purpose Acquisition Company may be one of the longer-lasting events. The SPAC was all the rave in 2020 as investors were flooded with SPAC’s, SPAC mergers, and SPAC-related rumors about who was going to merge with whom.
From some perspectives, the SPAC is a very good thing; maybe not so much from others. Still, regardless the SPAC for a lot of companies, the SPAC was an easy, cheaper way to go public and raise funds for their organization without having to jump through the traditional IPO or initial public offering process.
Similar to the number of IPO Exchange Traded Funds, like the First Trust U.S. Equity Opportunities ETF (FPX) or the Renaissance IPO ETF (IPO), which offer investors a way to play recently IPO’d stocks, without having to purchase these stocks so after going public themselves. Investors also have a few ways to play SPAC’s without following them intently and tracking which mergers occurred and which ones have yet to close.
The first SPAC ETF that came to market was the Defiance Next Gen SPAC Derived ETF (SPAK). This ETF invests in both SPAC’s before merging and SPAC’s which have already merged with the company that is going public. The fund has an expense ratio of 0.45%, has a little under $60 million in assets under management, and was first brought to market on September 30th of 2020. The fund will be rebalanced at the end of each July and have a weighted position of 60% assets in SPAC-derived companies and 40% in SPACs themselves.
I used a version of this exact strategy to win the 2019 U.S. Investing Championship and have been teaching it to my students for a decade.
Another option is the SPAC and New Issue ETF (SPCX), which focuses mainly on the SPAC’s themselves prior to merging with other companies. The fund manager is trying to identify SPAC managers that have a proven track record of making deals with companies coming to the public markets. This fund has an expense ratio of 0.95%, which is on the high end but since the fund is actively managed. The inception date of SPCX is December 16 of 2020, and the fund currently has just over $118 million in assets. Currently, the fund has 55 positions and is up 9.5% Year-to-date.
Then on January 20th, 2021, investors were handed the opportunity to invest in the Morgan Creek – Exos SPAC Originated ETF (SPXZ), which invests both SPAC’s and post-merger SPAC’s with an eye towards a 33% pre-combination and 66% post-combination. The fund has an expense ratio of 1.00% and currently only has $24 million in assets. Over the past three months, the fund is down 16.5%, but it is still new, so investors should give it a little time.
More recently, on May 19th, 2021, two other SPAC ETFs hit the market, the DE-SPAC ETF (DSPC) and the Short De-SPAC ETF (SOGU). The DSPC is an ETF that is made up of post-SPAC or SPAC-derived US-based companies, and the SOGU is the ‘short’ version of the DSPC. The fund will hold 25 of the largest post-merger SPAC companies in an equally weighted portfolio. The fund will be rebalanced monthly and reconstituted annually. SOGU provides the inverse exposure to the same exact portfolio of SPAC-derived companies. DSPC has an expense ratio of 0.75%, while SOGU charges 0.95%. These two funds offer investors the most similar option as to the post-IPO-based ETFs.
With investors’ appetite for SPAC’s increasing over the last year, ETF providers are trying to get a piece of the pie and offer investors a number of different ways to play the new companies. Whether these are good investors or not will only be seen in the future, but with SOGU available, investors who are confident in either outcome have options to make investments based on their beliefs.
Personally, I am going to play the wait-and-see game with SPAC’s and perhaps circle back to this budding new world in a few years from now when we have a little more information about SPAC-derived stocks' longer-term performance.
Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.