The first product in this space, the Defiance Next Gen SPAC Derived ETF (SPAK), began trading on October 1 and now has assets of almost $59 million. It follows the Indxx SPAC & NextGen IPO Index that tracks the performance of newly listed SPACs and IPOs derived from SPACs since August 1, 2017. It currently has 106 holdings.
The Defiance fund sports an expense ratio of 0.45%. It’s up 6.3% so far this year and 16.4% since inception. This is the fourth ETF from Defiance, a New York City-based asset manager whose products invest in thematic, cutting-edge technologies.
SPACs have been around for several decades but had remained an obscure part of the market until the past year or so year after high-profile companies such as DraftKings, Virgin Galactic and Nikola Corp. used the model to go public.
A SPAC’s common shares are typically sold at $10 per unit, and include a warrant giving the shareholder the right to purchase a certain number of additional shares of common stock at a certain price.
Despite the recent hoopla surrounding SPACs, some think the easier route they offer for a company to go public means there’s less scrutiny of immature, speculative businesses.
One of the critics is Goldman Sachs chief executive David Solomon, who recently called the SPAC boom unsustainable. (Goldman Sachs has created two SPACs; the first one acquired Vertiv Holdings, a data center and IT infrastructure company that went public early last year.)
Indeed, some SPAC deals go bad, and a prime example is electric-vehicle maker Nikola, which combined with VectoIQ Acquisition Corp. in early June last year and shortly after went public to much fanfare. The shares peaked at $94 in early June but later drifted downward until September, when they got whacked after reports that the U.S. Justice Department and the Securities and Exchange Commission were investigating fraud accusations made against Nikola by a short seller. Nikola’s shares closed yesterday at $21.
But many companies go south after listing anyway, whether or not a SPAC was involved, and the consensus is that this model will have staying power. Noted hedge fund managers such as Bill Ackman at Pershing Square Capital Management’s and Larry Robbins at Glenview Capital Management have joined the SPAC fray, and others will likely follow.
For better or worse, SPACs are the new game in town. They come with risks, but they also have their merits. Investors interested in this space but wary of making bets on individual SPACs now have three ETFs to choose from.