Two financial industry heavyweights have unveiled an actively managed ETF providing exposure to Special Purpose Acquisition Companies, or SPACs, and publicly listed companies that are born from them.

Mark Yusko, CEO & CIO, Morgan Creek; Brady Dougan, CEO, EXOS Financial.

The Morgan Creek – Exos SPAC Originated ETF (SPXZ US) has listed on NYSE Arca and comes to market through a partnership between Mark Yusko’s Morgan Creek Capital Management and Brady Dougan’s EXOS Financial.

The fund comes with an expense ratio of 1.00%.

Often referred to as blank-cheque companies, SPACs are listed acquisition vehicles that are formed for the specific purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more private operating companies.

SPACs often have pre-determined time frames (typically two years) to merge or the SPAC will liquidate.

According to Morgan Creek, SPACs have certain advantages over traditional initial public offerings (IPOs) in how companies looking to go public can tell their story. In particular, SPACs are not subject to the “quiet periods” of traditional IPOs, a feature that is drawing innovative companies, whose values lie mostly in their future, to the SPAC model.

The strategy

The Morgan Creek – Exos SPAC Originated ETF expects to hold approximately two-thirds of its capital in an equally weighted portfolio of companies that have completed SPAC mergers over the past three years. This sleeve of the portfolio will consist of at least 20 companies sourced from amongst the largest 50 in the eligible universe.

The remaining one-third of fund capital will be allocated to an equally weighted portfolio of at least 20 pre-combination SPACs, also drawn from the largest 50 in its eligible universe.

Constituent selection will be driven by the number of post-combination SPACs attracting broad research-analyst coverage, the expected pipeline for SPAC combinations, the number of pre-combination SPACs with market capitalizations over $250m, and the expected pipeline for new SPAC IPOs.

Bifurcated performance

According to Mark Yusko, CEO and CIO at North Carolina-based Morgan Creek, active management should be a key consideration for those investing in the SPAC space.

“Historically, SPAC returns have been bifurcated, with the top deals performing very well, but the bottom deals performing poorly,” said Yusko, a former CIO of the University of North Carolina Endowment. “Given the nature of the embedded sponsor incentives in these deals, we expect this performance bifurcation should continue in the future.

“As an increasing number of the most innovative companies in the potential ‘industries of the future’ choose to go public via SPACs, we think it’s important to provide investors with a liquid, transparent, actively managed vehicle to gain access to those companies of the future.”

Brady Dougan, CEO at New York-based EXOS Financial, added, “We see SPACs as an area we can add tremendous value. One where our experience, knowledge of management teams, relationships, and a deep understanding of evolving technological trends is a true differentiator.”

Dougan is a former CEO of Credit Suisse.

The fund is the third SPAC ETF to hit the market. In December 2020, Tuttle Tactical Management launched the actively managed SPAC and New Issue ETF (SPCX US), which has a slightly cheaper expense ratio of 0.95%. And in October, Defiance ETFs launched the passively managed Defiance Next Gen SPAC Derived ETF (SPAK US), costing 0.45%.