New York-based investment adviser Horizon Kinetics has introduced two new actively managed ETFs providing exposure to pre-merger SPACs and innovative healthcare companies.
Horizon Kinetics has added two new funds to its active ETF line-up.
Listed on Nasdaq, the Horizon Kinetics SPAC Active ETF (SPAQ US) and Horizon Kinetics Medical ETF (MEDX US) have been created by converting two existing Horizon Kinetics mutual funds which housed $10 million and $20m in assets, respectively.
SPAQ and MEDX each come with an expense ratio of 0.85%, a price tag that is substantially cheaper compared to the fees charged under their mutual fund format.
SPAQ
Special Purpose Acquisition Companies (SPACs), also known as blank-cheque companies, are companies with no commercial operations of their own that are established solely to raise capital through an initial public offering (IPO) for the express purpose of acquiring an existing operating company.
A SPAC typically has two years to complete an acquisition or merger or face liquidation. In the intervening period, while a SPAC is searching for a deal, assets are typically invested in US government bonds, money market instruments, and cash, all of which are held in a ring-fenced trust account.
SPAC regulations allow investors to demand their money back before a SPAC deal is completed, or once SPAC sponsors run out of time to find a target.
While a SPAC is searching for a target, it may trade somewhat lower than the value of its collateral if sentiment for that SPAC, or in the SPAC market in general, is low. The announcement of a potential deal, however, brings in new investors and speculators, often driving the SPAC’s price well above its NAV.
The Horizon Kinetics SPAC Active ETF exploits these unique structural characteristics of SPACs so as to provide a short-duration exposure that aims to earn a more meaningful risk-adjusted return compared to traditional cash alternatives.
If a deal is orchestrated, the ETF does not plan to hold the SPAC beyond the intended business combination. Rather, the fund would redeem shares for the per-share cash value of the trust account.
The ETF is sub-advised by Ryan Heritage, an affiliate of Bulldog Investors, which has been researching and investing in SPACs for over 15 years.
Phil Goldstein, co-Portfolio Manager and Managing Partner at Ryan Heritage, commented: “Despite some recent bad press, SPACs offer income-dependent investors a viable way forward. We believe SPAQ is a superior alternative for the risk-averse investor who is dissatisfied with the interest rate offered on bank certificates of deposit with maturities of six months to two years.”
MEDX
The Horizon Kinetics Medical ETF invests in US-listed securities, including American Depository Receipts, of companies deriving at least 50% of their revenue from medical research, pharmaceuticals, and medical technology industries.
The fund takes a long-term perspective, seeking returns from both intrinsic valuation realization and scientific discovery. It invests primarily in patented first-line pharmaceuticals and biologics, as well as other health care companies offering products with high profit margins and significant barriers to entry.
The ETF may also judiciously invest in public venture capital at the cutting edge of advances in science with the goal of participating in success mode without incurring undue portfolio risk.
Paul Abel, Portfolio Manager at Horizon Kinetics, said: “The past two decades have witnessed a dramatic improvement in the standard of care. One need only consider the new vocabulary that has been introduced: monoclonal antibody, Car T treatment, Immunotherapy, etc. Good science is good medicine during periods of market uncertainty. Our pharmaceutical companies are lean and mean, with multi-billion-dollar per-year investment programs, while our biotechs are mature businesses. The distinction between the two has all but evaporated. To that end, we are pleased to announce the evolution of The Medical Fund into an actively managed ETF.”