Special purpose acquisition companies (SPACs) have been around for about three decades, but seriously came into bloom in 2020.
Still, stock picking among individual blank-check firms is difficult. Exchange traded fund issuers are seizing upon that theme, as there are now three ETFs dedicated to the SPAC topic. The original of the trio – the Defiance Next Gen SPAC Derived ETF (SPAK) – is proving there’s appetite for these funds. SPAK recently topped $100 million in assets under management.
“Defiance’s SPAK ETF allows investors access to the largest and most liquid SPACs in a diversified rules-based basket (60% post-merger, 40% pre-deal SPACs). These include big names like Bill Ackman and Chamath Palihapitya,” says Sylvia Jablonski, Chief Investment Officer & Co-founder at Defiance ETFs.
SPACs Are Coming of Age
Picking the winners of individual SPACs can be very difficult, however the ETF structure allows investors to access the most liquid SPAC IPOs in a diversified basket. SPAK allows both financial advisors and retail investors to participate in an IPO private equity style of investing. Those are meaningful traits because many post-merger companies struggle after SPAC deals, underscoring the potential benefits of eschewing selection of individual names and embracing SPAK’s basket approach.
Competition is fierce in the ETF landscape, and differentiation is important for providers seeking to separate themselves from the masses.
SPACs have grown in popularity as they increasingly attract high-worth, credible sponsors. As the quality of their founders and the success of their merger companies grow, so does their integrity in the wider investment community.
As of Feb. 11, SPAK has $105.57 million in assets under management. Its largest holding is DraftKings (NASDAQ:DKNG) at almost 9%.
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