Investors have a new way to play in the booming Special Purpose Acquisition Company, or SPAC, market: the
Defiance NextGen SPAC dérivé
exchange traded fund. It debuted on the New York Stock Exchange on Thursday under the symbol SPAK.
ETF comes in record year for PSPCs: 116 initial public offerings raised nearly $ 44 billion in revenue, more than in the past five years combined, according to data from SPAC Insider. Sometimes referred to as “blank check companies,” PSPCs go public in the form of cash shells, with the sponsors later identifying an operating business with which to merge. PSPC shares are converted into shares of the target company once they combine.
(DKNG) and – until recently –
(NKLA). The first two are among the main securities of the SPAK ETF, with
Living in a smart home
(LPRO). Nikola was kicked off the index on Wednesday.
The ETF’s tenth largest position is an active SPAC: Churchill Capital III (CCXX). The $ 1.1 billion PSPC announced in July a merger agreement with MultiPlan, a provider of software and services to health insurers, for an enterprise value of $ 11 billion.
PSPCs and companies must also have a market capitalization of at least $ 250 million to constitute the index. This excludes dozens of PSPCs with smaller trusts. PSPCs tend to do transactions with a total value of many times their trust. PSPC’s average IPO grossed $ 379 million in 2020, up from $ 231 million last year, according to SPAC Insider. Bill Ackman’s $ 4 billion
Pershing Square Tontine Holdings
(PSTH) pushes up the 2020 average.
Some PSPCs may also struggle to meet the ETF’s minimum liquidity thresholds. Indxx plans to rebalance the index each year at the end of July, but may also add SPAC IPOs at the end of January, April and October. Companies subsequent to the SPAC merger can join on the last trading day of each month.
PSPC’s low research allocation is likely due to the fact that their stocks don’t tend to move much. In practice, PSPCs rarely negotiate below their trust values. Indeed, at the time of a PSPC merger, shareholders have the option of repurchasing their shares for a proportionate share of the money in its trust, typically $ 10 plus the meager interest earned since the initial public offering. PSPC savings. Outside of times of extreme stress in the markets, such as in March, this is usually the floor on which SPAC shares trade.
However, some famous sponsor PSPCs trade well above their trusted values. These are the investors who bet the team will arrange an attractive merger with an operating company worth more than the money. In fact, some do and some don’t – the performance spectrum is wide, just like with traditional IPOs. Diversification through an ETF could mean that the extremes are canceling out.
Once PSPCs announce their target and finally close the deal, their historic performance has been mixed. A study by Goldman Sachs earlier this year found that PSPCs tend to outperform the market in the month and quarter after announcing their trade, but after the merger new stocks tended to be at the train. This is the group that obtains an 80% weight in the SPAK ETF.
Some post-ad, pre-emerge PSPCs that have significantly outperformed the market include
Acquisition of turtles
(SHLL), which concludes its agreement with Hyliion on Thursday;
(DPHC) with Lordstown Motors; and
Capital social Hedosophia Holdings II
(IPOB) with Opendoor.
Barron’s recently wrote a cover story on how to invest in PSPCs and what to watch out for.
Canadian investors have had access to
Accelerate Arbitrage Fund
(ARB.Canada) since April. It uses an actively managed SPAC merger arbitrage strategy. The ETF has returned around 14% since its inception, compared to a return of 23% for the
in the same period.
The SPAK ETF has an expense ratio of 0.45%. Defiance’s other ETFs include
Defiance Next Gen Connectivity ETF
ETF Biotech Junior
(IBBJ). The company submitted its first application for ETF SPAC membership at the end of July.
“Choosing the winners of individual SPACs can be very difficult, but the structure of ETFs allows investors to access the most liquid SPAC IPOs in a diverse basket,” Defiance ETF said in a statement. “SPAK allows both financial advisors and retail investors to participate in a private equity investment style IPO, which until now has only been available to large financial institutions.”
After valuing at $ 25 a share, the SPAK ETF opened at $ 25.74 on Thursday. It closed at $ 26.15, up 1.6% from the open and 4.3% above its price. The S&P 500 rose 0.5%.
Write to Nicholas Jasinski at [email protected]