Special purpose acquisition companies (SPACs) aren’t going anywhere. On the contrary, initial public offerings (IPOs) in the space have already surpassed last year’s tally and the pace of deal-making remains steady.
However, markets are taking a more watchful eye when it comes to deal quality and the performance of de-SPACed companies, which for the most part, hasn’t been good. Still, this asset class isn’t going anywhere as interest among retail investors remains intense.
For investors looking to position to for a blank-check rebound, the Robinson Alternative Yield Pre-Merger SPAC ETF (SPAX) is an exchange traded fund that merits consideration.
“We also have experienced a period of plenty of speculative buying across the financial markets, such as retail investors investing in meme-mania stocks via platforms such as Robinhood that have driven some wild stock price gyrations,” writes Russell Investments analyst Cameron McVie. “The SPAC market provided another avenue for speculative money to find the next unicorn company. Notably, BofA Research identified that retail investors in the SPAC universe accounted for twice the trading volume, compared to the S&P 500 and Russell 2000 stocks, during the second half of 2020.”
SPAX, which debuted in June, offers investors a couple of significant advantages. First, it’s actively managed – a style that’s beneficial in the world of SPACs. Second, SPAX only invests in pre-deal SPACs, meaning it doesn’t hold shares of the acquired companies when they de-SPAC and become freestanding entities. That’s a plus because, as noted above, many of these firms are seeing share prices rapidly decline. Said another way, SPAX can help investors avoid some of the risks in owning an individual blank-check stock.
“Investors that had been absorbing the supply were balking at even more securities coming to market, when a large proportion of their portfolio was still capital held in trust, searching for an acquisition,” adds Russell’s McVie. “In addition, a combination of a lack of additional available capital and portfolio risk management meant that for investors to fund the new supply, they needed to sell existing SPAC positions in their portfolio. This led to selling pressure and a classic liquidity-driven selloff.”
SPAX managers can focus on blank-check sponsors with established track records of getting deals done. That’s relevant because finding merger partners is the catalyst for boosting SPAC share prices. Plus, blank-check firms have just two years to execute a deal or face liquidation.
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