The year 2020 witnessed several trend reversals due to the pandemic. Along with the change in the field of work culture and lifestyle, there was a notable shift in the investment world. For example, a major change noted in the IPO and M&A field is the rise of Black Check or Special Purchase Acquisition Company (SPAC). Notably, the Blank Check route for going public is less complicated and pricey.
Big shot investors like Bill Ackman and Michael Klein have raised billions through their SPACs in 2020. About 45% of U.S. corporate executives had shown interest in pursuing SPACs in late 2020, according to Deloitte, as quoted in an article.
Given the resurgence in blank check companies, several SPAC ETFs have been launched in the recent past. Those are: Defiance NextGen SPAC IPO ETF SPAK, SPAC and New Issue ETF SPCX and Morgan Creek – Exos SPAC Originated ETF SPXZ.
However, the winning spree faltered this year. An index that tracks SPAC listings has declined about 17% from a February high due to the overvaluation concerns, while the U.S. market regulator has warned retail investors “against celebrity-endorsed cash shells”, per Bloomberg, as quoted on Economic Times.
Apart from regulatory body’s apprehensions, SPACs also tumbled this year on rising rates. An index tracking the shares dropped 20% from its peak, after almost doubling since October. One of the sought-after bets in this field was Virgin Galactic Holdings (NYSE:SPCE) Inc. SPCE, a developer of space vehicles, is still off more than 40% from its February high.
As a result, people are now interested in shorting SPACs. Short interest on the above-mentioned ETFs is at or near the highest levels on record, with 13% of shares outstanding on SPCX held short, per Bloomberg.
Inverse SPAC ETF in the Cards
This calls for the need of an inverse SPAC ETF, which Tuttle Tactical Management plans to bring in. The issuer recently filed two products– the De-SPAC ETF and the Short De-SPAC ETF.
The De-SPAC looks to provide investment results that correspond, before fees and expenses, to the price and yield performance of The De-SPAC 25 Index. Management fees of the fund is 0.70%.
The short De-SPAC ETF looks to offer inverse of the performance of the De-SPAC 25 Index. Management fees of the fund is 0.85%.
The Index consists of the twenty-five largest companies, based on market capitalization, that have completed a business combination transaction with a SPAC.
Can the Short Fund See Success, If Approved?
The fundamentals behind inverse SPAC ETF look good. “Postmerger companies are particularly attractive to short because they have larger market capitalizations, making their shares easier to borrow, and because early investors in the SPACs are eager to sell shares to lock in profits, analysts and fund managers said,” according to Wall Street Journal, as quoted on ETF Trends.
The above logic indicates that the inverse SPAC ETF should see enough interests from investors if it hits the market. The fund should also see success (if approved) as there is not much competition.
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