Special purpose acquisition companies, or SPACs, were hot in 2020, when 248 went public, raising well over $80 billion. New SPACs are issued nearly every week, and many regard them as one of the disruptive trends emerging on Wall Street. Deciding which SPACs are robust investments can become an overwhelming task for most retail investors. So investing an exchange-traded fund (ETF) could be the way to go.
Several of the hot SPAC names of the past quarters include Canoo (NASDAQ:GOEV), DraftKings (NASDAQ:DKNG), Golden Nugget Online Gaming (NASDAQ:GNOG), Luminar Technologies (NASDAQ:LAZR), Repay (NASDAQ:RPAY), Quantumscape (NYSE:QS) and Virgin Galactic (NYSE:SPCE).
We previously discussed the basics of such blank-cheque companies and the Defiance Next Gen SPAC Derived ETF (NYSE:SPAK). It has returned around 20% since its inception in October. Today, we introduce another ETF that may pique investors' interest.
2021 Will Be Hot For SPACs
Raising money through a blank-cheque company is not a new phenomenon. Research by Yochanan Shachmurove of the University of New York and Milos Vulanovic of EDHEC Business School highlights:
"As an investment vehicle, modern SPACs are traced back to 18th century England, where blank cheques were first mentioned as blind pools during the infamous South Sea Bubble."
SPACs, however, have experienced a renaissance in recent quarters. So far in 2021, close to $30 billion has been raised from investors. For venture capitalists, SPACs are also becoming an important exit strategy to take portfolio firms public.
These SPACs have initial public offerings (IPOs) without any real business operations. Management uses the IPO proceeds to acquire privately-held businesses that want to go public.
Most SPACs start life between $8 - $10, when many investors buy into them, even before a merger is announced. In other words, they are rather speculative investment. The Street looks to the management team to determine how well any potential deal with a private business might go.
As rumors about a potential reverse-merger start circulating, the price typically starts going up. Discussions on social media platforms like Twitter (NYSE:TWTR) and Reddit tend to provide tailwinds for the price momentum.
When the deal is finalized, the new entity starts life on the stock exchange, usually under a new stock ticker. Most investors then start paying attention to more traditional fundamental metrics regarding the business's health and prospects.
With that in mind, let's take a closer look at our ETF for today.
SPAC and New Issue ETF
Current Price: $30.93
52-Week Range: $25.05 - $31.50
Dividend Yield: N/A
Expense Ratio: 0.95%
The SPAC and New Issue ETF (NYSE:SPCX) provides exposure to a broad portfolio of SPACs with at least $100 million in market capitalization. The fund has close to $118 million under management.
SPCX, which holds 78 stocks, is an actively-managed fund. The top five non-cash holdings are:
- Churchill Capital IV Corp (NYSE:CCIV) – the rumor mill points to a potential reverse-merger with EV group Lucid Motors;
- Starboard Value Acquisition (NASDAQ:SVACU)
- Cohn Robbins Holdings (NYSE:CRHC)
- CC Neuberger Principal Holdings II (NYSE:PRPB)
- Decarbonization Plus Acquisition Corp (NASDAQ:DCRB)
The fund opened at $25.10 on Dec. 16 and reached a record high in recent days. Which means, in less than two months, the ETF has returned around 20%. However, it is still a new fund and does not have much trading history.
Those investors interested in the excitement and potential of these speculative investments may want to do more due diligence on SPCX.
In a recent investor bulletin, the U.S. Securities and Exchange Commission (SEC) said:
“To learn more about a sponsor’s interests in a SPAC, you should review the 'Principal Stockholders' and 'Certain Relationships and Related Party Transactions' sections of a SPAC’s IPO prospectus.”
Bottom Line
2020 showed that SPAC investments could be highly profitable for those who can also ride the volatility of these investments. From Wall Street to Silicon Valley, interest in these vehicles are likely to continue.
This year, another ETF, the Morgan Creek - Exos SPAC Originated ETF (NYSE:SPXZ), started trading, too. On Jan. 26, SPXZ opened at $25.38 and is currently hovering at $24.74. We plan to cover this fund in the future.
Meanwhile, those investors who are interested in the more traditional IPO space may want to research the following ETFs:
First Trust International Equity Opportunities ETF (NASDAQ:FPXI) – up 4.2% YTD
First Trust US Equity Opportunities ETF (NYSE:FPX) – up 5.9% YTD
Invesco S&P Spin-Off ETF (NYSE:CSD) – up 3.1% YTD
Renaissance International IPO ETF (NYSE:IPOS) – up 5.4% YTD
Renaissance IPO ETF (NYSE:IPO) – up 7.3% YTD