Investors have a new way to play the booming market for special purpose procurement companies, or SPACs:
Sequence NextGen SPAC Originated
commodity exchange funds. It made its debut on Thursday on the New York Stock Exchange under the ticker SPAK.
The ETF came in a record year for SPACs: The 116 initial public offerings raised nearly $ 44 billion in proceeds – over the past five years combined, according to data from SPAC Insider. Sometimes referred to as “empty check companies,” SPACs are publicized as money shells, with advocates being identified later as an operating business to consolidate. SPAC shares convert shares into the target company once they merge.
The SPAK ETF monitors the performance of the Indxx SPAC & NextGen IPO Index, but it is not a perfect representation of the overall SPAC market. In fact, it is more than an index of companies that have become public through the integration of SPAC. Those gain 80% weight in the index, while premier SPACs make up the rest, according to a regulatory submission on Wednesday.
Some of the best performing stocks of 2020 are the result of the SPAC merger. With those
(DKNG), and – until recently—
(NKLA). The first two are among the leading holders of SPAK ETF, including
Living Smart Home
(LPRO). Nikola was booted from the index on Wednesday.
The tenth largest ETF position is an active SPAC: Churchill Capital III (CCXX). The $ 1.1 billion SPAC announced an agreement in July to merge MultiPlan, a provider of software and services to health insurers, for a $ 11 billion business.
SPACs and companies must also have a market capitalization of at least $ 250 million to make the index. That excludes dozens of SPACs with smaller trusts. SPACs tend to deal with a total amount of times they trust. The average SPAC IPO brought in $ 379 million in 2020, compared to $ 231 million last year, according to SPAC Insider. $ 4 billion by Bill Ackman
Pershing Square Tontine Holdings
(PSTH) carries the 2020 average.
Some SPACs may also struggle to meet the ETF’s minimum liquidity limits. Indxx plans to rebalance the index annually by the end of July, but may also add SPAC IPOs by the end of January, April, and October. SPAC merger companies can join the last trading day of any month.
The low allocation in finding SPACs is likely because their stocks have not moved much. In practice, SPACs rarely trade below their trust values. That’s because, at the time of joining a SPAC, shareholders have the option to claim their share for a proportionate share of cash in its trust — typically $ 10 plus any small interest earned from the initial investment. public offering to SPAC. Outside of periods of severe market stress such as March, it tends to be the floor on which the SPAC distributes goods.
Some SPACs from high-profile sponsors trade more than their trust values, however. Those are the investors who bet that the team will put together an attractive merger with an operating company worth more than cash. In fact, some do and some do not – the scope of presentations is wide, as are traditional IPOs. Variation through an ETF can mean over-cancellation of each other.
After the SPACs announced their target and finally closed the deal, their performance was mixed with history. A study by Goldman Sachs earlier this year found that SPACs tend to exceed the market within a month and a month following their announcement of the deal, but that after the merger, the new stocks tend to get caught. That is the group that gets 80% weight in the SPAK ETF.
Some post-announcement, premerger SPAC that significantly missed will be included in the market
(SHLL), which closes its deal with Hyliion on Thursday;
(DPHC) with Lordstown Motors; at
Social Capital Hedosophia Holdings II
(IPOB) with Opendoor.
Kay Barron Recently wrote a cover story on how to invest in SPACs and what factors to look out for.
Canadian investors have access to
Accelerate the Arbitrage Fund
(ARB.Canada) since April. It uses an active managed SPAC merger strategy of arbitrage. The ETF has returned about 14% since its inception, compared to a 23% return for
at the same time.
SPAK ETF has a cost ratio of 0.45%. Other Defiance ETFs include 5G-focused
Defiance Next Gen Connectivity ETF
(FIVG) and the
Junior Biotech ETF
(IBBJ). The company first filed for the SPAC ETF in late July.
“Selecting the winners of individual SPACs can be very difficult, but the ETF structure allows investors to access the most liquid SPAC IPO in a diversified basket,” Defiance said ETFs in a statement. “SPAK allows both financial advisors and retail investors to participate in an IPO-style private equity investment, which until now was only available to large financial institutions.”
After pricing at $ 25 a share, the SPAK ETF opened at $ 25.74 on Thursday. It closed at $ 26.15, up 1.6% from tomorrow and 4.3% above where it loaded. The S&P 500 rose 0.5%.
Write to Nicholas Jasinski at [email protected]