(Bloomberg) -- After all the hype around blank-check companies earlier this year, things have gotten ugly, with those shares selling off amid a stock-market rout.
The Defiance Next Gen SPAC Derived ETF (SPAK), which primarily tracks companies that raise money for buying businesses, has plunged more than 14% since its October debut. Online sports-betting company DraftKings (NASDAQ:DKNG) Inc. has tumbled about 40% this month, while Virgin Galactic Holdings (NYSE:SPCE) Inc. -- a developer of space vehicles -- is down about 9%.
Special purpose acquisition companies, or SPACs, have become a hot area of the market as a way for purchasers to avoid the costly and time-consuming initial public offering process. Instead, they sell shares of a company that has no operations, promising to use the money within two years to buy a private one. But after a giant rally in 2020, those stocks were engulfed in the market rout, and extended losses on Friday as volatility remained elevated heading into next week’s presidential vote.
“Considering the serious uncertainty about another stop-gap plan from the U.S. government and next week’s elections, it does not surprise me that there is hesitation about adding more money to the so-called blank-check investment space,” said James Pillow, managing director at Moors & Cabot (NYSE:CBT) Inc.
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