ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Alternatives Channel
  2. Jonathan Browne: What to Know About SPACs
Alternatives Channel
Share

Jonathan Browne: What to Know About SPACs

Elle CarusoMar 14, 2022
2022-03-14

SPACs, or special purpose acquisition companies, are non-operating publicly traded companies created to acquire or merge with existing companies. While SPACs have been around for decades, their popularity has surged in recent years, leading to misconceptions about the structure and oversimplification of the risks and rewards associated.

Recently, ETF Trends’ managing editor Lara Crigger sat down with Jonathan Browne, portfolio manager and director of research at Robinson Capital, to discuss how SPACs can be used as alternative fixed-income investments and why Browne favors pre-merger SPACs for their attractive risk/reward profiles.

Robinson Capital specializes in alternative fixed income strategies, providing solutions that offer higher yield without taking on added risk to advisors who realize their fixed income portfolios are not providing the income or safety that they once did.

Lara Crigger, managing editor, ETF Trends and ETF Database: You’re an alternative fixed income shop investing in SPACs. How did you get involved in that?

Jonathan Browne, portfolio manager and director of research, Robinson Capital: We’ve historically been investing in closed-end funds and taking advantage of the irrational discounts that they provide. But, as fixed-income managers, our goal is always to protect our clients’ principles. What’s unique about [pre-merger SPACs] is that they provide absolute downside protection. Pre-merger SPACs are those that haven’t completed a merger yet; all they are is a pool of capital that’s raised by a sponsor or management team to ultimately go out and find a private company to bring public. 

What’s unique is that all of the money or proceeds they raise via prospectus have to be placed in a trust account or an escrow account invested in T-bills. At the end of the day, whether that sponsor manager finds a deal or not, the end investor can redeem their shares for trust value, which we’ll call $10 a share. 

We know that whether a deal is found or not if we can buy these — and right now, we can buy these around three, three and a half percent below that $10 trust value — we know that no matter what happens, that at the end of the SPAC’s life cycle, which is generally 12 to 24 months, we can get $10 back. 

So we have that absolute downside protection of pre-merger SPACs. If the market drops 50%, I know that no matter what, I can redeem these SPACs for trust value or positive 3.5% return. What other investment have you ever seen where you know that your worst case is a positive return?

Crigger: Well, there’s bonds, right?

Browne: Pre-merger SPACs are really just a bond, right? At the end of the day, it has a stated maturity, just like a bond. It has the credit interest rate risk of a T-bill portfolio because all of that cash is just sitting in a trust account that’s invested in six month tables or less, so you don’t have the credit and interest rate risk of a corporate bond. 

What really gets us excited is you have equity-like upside optionality — if any of the SPACs that we own announce a merger target that the market finds interesting… You just don’t have that upside potential in traditional bonds.

Crigger: For a financial advisor who’s looking at this, hearing the argument that you can think of these investments as a fixed income investment — it seems then implementing it and executing on the strategy, you would be pulling from your other fixed income allocation and replacing it with something like this.

Browne: Absolutely. What’s also somewhat unique is that it’s pretty versatile. We’re approaching it as an alternative fixed income because we think it’s an absolute no-brainer, especially if you’re worried about credit or interest rate risks…But we also realize that there are advisors out there who may have an alternative sleeve that they have absolute return strategies or M&A-type strategies in there, and this fits the bill perfectly. I can even make the case that for someone concerned about equities, this is a much better defensive equity holding, just given that absolute downside exists. 

Crigger: When you’re thinking about the risks inherent in your strategy, what are some of the risks that folks need to keep in mind?

Browne: Going back to the pre-merger, the risks are extremely limited. Until they complete a merger, [pre-merger SPACs are] just a pool of cash that’s sitting there waiting to be deployed. And so they’re all sitting in six-month T-bills, or less. And that’s written in every single prospectus of the SPACs that they must be invested in T-bills. So your risk is equivalent to a T-bill portfolio.

Once you get past the pre-merger SPAC into when they post-merger SPAC or de-SPAC and become equities, you have 100% downside potential just like every other equity that’s out there. It also means you have the volatility of small-cap equities.

For more news, information, and strategy, visit the Alternatives Channel.

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X