By Sylvia Jablonski, chief investment officer of Defiance ETFs, a New York-based exchange-traded funds (ETFs) sponsor and investment advisory.*
Special Purpose Acquisition Companies (SPACs) are formed to take other companies public, and in 2021 they overtook the traditional initial public offering (IPO) route as the numerically more popular way for growing businesses to become publicly traded (306 SPAC IPOs vs. 81 traditional IPOs**).
SPACs raised over $93bn and over 70% of the total US IPO proceeds so far this year.*** The capital they raise is from selling $10 shares to retail and institutional investors alike, thereby opening up access to the mergers and acquisitions market and the disruptive potential it represents.
SPAC activity has intensified over the last two years, as SPACs have generally attracted credible, seasoned dealmakers as sponsors, who are trusted by investors to identify strong potential targets to merge with and make public. Bill Ackman, Michael Klein and Chamath Palihapitiya are all serial SPAC sponsors, bringing legitimacy and increasingly competitive terms in an effort to benefit investors and target companies alike.
Businesses increasingly see SPACs as a faster, smoother route to public status, avoiding the lengthy, opaque and risky old IPO process. Virgin Galactic and DraftKings are examples of companies that saw significant stock price hikes after their SPAC mergers. But other cutting-edge markets such as electric vehicles, pharmaceutical and plant-based foods have also seen SPACs bring capital and added value to their sectors.
Not every SPAC sees such success however, and investors looking for exposure in this dynamic space should consider a SPAC ETF as a way to mitigate the inherent risk in any single deal. Defiance’s SPAK ETF, for example, aims to spread the risk over the largest, most liquid SPACs across the whole IPO flow – from the pre-deal SPAC looking for an appropriate target to the post-merger company with its potential capital boost and scope for growth.
In the current economic environment, with historically low interest rates and post-Covid government cash injections, many investors are seeking returns and bringing their capital to the stock market. In parallel, innovative and fast-moving companies need capital to weather the pandemic challenges and take their businesses to the next level. SPACs are bridging these two sides and a SPAC ETF can offer balanced exposure to potential gains from these deals.
Important Disclosures:
The Funds’ investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus contain this and other important information about the investment company. Please read carefully before investing. A hard copy of the prospectuses can be requested by calling 833.333.9383.
Defiance Next Gen SPAC Derived ETF:
Investing involves risk. Principal loss is possible. As an ETF, the funds may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. The Funds are not actively managed and would not sell a security due to current or projected underperformance unless that security is removed from the Index or is required upon a reconstitution of the Index. A portfolio concentrated in a single industry or country may be subject to a higher degree of risk. The value of stocks of information technology companies are particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition. The Funds are considered to be non-diversified, so they may invest more of its assets in the securities of a single issuer or a smaller number of issuers. Investments in foreign securities involve certain risks including risk of loss due to foreign currency fluctuations or to political or economic instability. This risk is magnified in emerging markets. Small and mid-cap companies are subject to greater and more unpredictable price changes than securities of large-cap companies.
The SPAK Fund invests in companies that have recently completed an IPO or are derived from a SPAC. These companies may be unseasoned and lack a trading history, a track record of reporting to investors, and widely available research coverage. IPOs are thus often subject to extreme price volatility and speculative trading. These stocks may have above-average price appreciation in connection with the IPO prior to inclusion in the Index. The price of stocks included in the Index may not continue to appreciate and the performance of these stocks may not replicate the performance exhibited in the past. In addition, IPOs may share similar illiquidity risks of private equity and venture capital. The free float shares held by the public in an IPO are typically a small percentage of the market capitalization. The ownership of many IPOs often includes large holdings by venture capital and private equity investors who seek to sell their shares in the public market in the months following an IPO when shares restricted by lock-up are released, causing greater volatility and possible downward pressure during the time that locked-up shares are released.
Sylvia Jablonski, Chief Investment Officer of Defiance ETFs, manages Defiance’s retail and institutional investment research, capital markets and thematic ETF model portfolios. Acknowledged as a top expert in the ETF space, Sylvia is frequently featured on CNBC, Bloomberg and the Wall Street Journal.
SPAK is new with a limited operating history.
Read more about SPAK here, including performance and holdings: https://www.defianceetfs.com/spak/. Fund holdings are subject to change and should not be considered recommendations to buy or sell any security.
Opinions expressed are subject to change at any time, are not guaranteed, and should not be considered investment advice.
Defiance ETFs are distributed by Foreside Fund Services, LLC
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*Sylvia Jablonski manages Defiance’s retail and institutional investment research and thematic ETF model portfolios. She is frequently featured on CNBC and Bloomberg and in the Wall Street Journal.
**SPAC and US IPO Activity. https://spacanalytics.com/ As of April 11, 2021.
***SPAC and US IPO Activity. https://spacanalytics.com/. As of April 11, 2021.
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