A potential solution for dealing with money-losing SPACs is to swap the stinkers with the Defiance Next Gen SPAC Derived ETF (SPAK). The fund offers diversified exposure to a basket of 315 different SPACs. And if an investor is still bullish on the evolving marketplace for these entities, SPAK provides a good way to participate.
High-Growth Funds
It’s no secret that thematic growth funds like the ARK Innovation ETF (ARKK) and ARK Genomic Revolution ETF (ARKG) have been hammered this year. The innovation fund has lost 20% year-to-date, while the genomics fund has lost 35%. Investors chasing the hot performance in 2020 are now likely sitting on losses.
Similar ETFs with an indexing approach could be a good solution for replacing losing trades in these two funds.
The Direxion Moonshot Innovators ETF (MOON) follows a similar thematic approach as ARKK but with slightly better 2021 performance. Plus, MOON charges a slightly lower expense ratio than ARKK does, which saves investors money.
The ALPS Medical Breakthroughs ETF (SBIO), meanwhile, could be a good replacement for ARKG. Rather than concentrating exposure on genomics stocks, SBIO takes a broader approach by focusing on U.S.-listed small-cap biotechs with one or more drugs in Phase II or Phase III of clinical trials for the U.S. Food & Drug Administration. As a bonus, SBIO charges lower annual expenses of just 0.50% while the ARK genomics fund charges 0.75%.
Summary
Keep in mind that the IRS allows a tax deduction on capital losses up to $3,000 per calendar year for individuals and married couples filing jointly. (It’s $1,500 for married individuals filing separately.) These losses can be used to offset any capital gains experienced in the same year. Moreover, losses that exceed $3,000 can be carried over and used in future years.
One of the conundrums of selling a losing investment is watching it go up right after you’ve sold it. And current tax rules prohibit investors who sell a stock or ETF for a loss from repurchasing the same investment or something identical within a 30-day period. If this rule is violated, the original trade is deemed a “wash sale,” and the tax loss cannot be used.
Bottom line: Exchange-traded funds make it easy for investors to avoid running afoul of the wash-sale rule, while helping investors avoid missing any future rebound.