Tuttle Tactical Management has unveiled two new ETFs on NYSE Arca providing long or short exposure to de-SPACs – public firms that have come to market by merging with Special Purpose Acquisition Companies (SPACs).
Matthew Tuttle, CEO & CIO, Tuttle Tactical Management.
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.
For private operating companies looking to raise funds and/or go public, SPACs offer an alternative to the traditional initial public offering (IPO) process.
After a SPAC has identified a target acquisition and a deal has been negotiated, the “de-SPAC” process begins. Recent high-profile de-SPACs include companies such as Virgin Galactic, DraftKings, QuantumScape, and Opendoor Technologies.
SPAC IPO activity grew rapidly in 2020 and is continuing to accelerate – year-to-date there have been 316 SPAC IPOs with gross proceeds of nearly $102 billion compared to 248 SPAC IPOs representing $83.3bn in 2020.
Commenting on the expected growth of the SPAC market, Matthew Tuttle, CEO and CIO of Tuttle Tactical Management, said: “There are currently 129 announced and pending SPAC deals out there representing over $43bn of capital. On top of that, there are over 400 SPACs with $135bn that are still searching for a merger partner. We are very much in the de-SPAC dawn right now, and there are going to be many investment opportunities to hit the US public markets in the years ahead.”
The ETFs
The De-SPAC ETF (DSPC US) tracks the De-SPAC Index which consists of the 25 largest de-SPACs that have come to market over the past year, equally weighted on a monthly basis. It comes with an expense ratio of 0.75%.
According to Tuttle, the index exhibits correlations of 0.49 and 0.64 with the S&P 500 and Russell 2000 respectively. The ETF may, therefore, appeal to investors seeking growth-tilted exposure while simultaneously enhancing the diversification of a traditional equity portfolio.
The Short De-SPAC ETF (SOGU US), meanwhile, uses derivatives such as options and swap contracts to provide the inverse (-1x) daily return on the De-SPAC Index. Its expense ratio is 0.95%.
Tuttle notes potential uses for the fund include hedging a broader de-SPAC portfolio as well as seeking to profit from a decline in these high-growth stocks. SPAC skeptics highlight the high volatility of de-SPAC companies, the limited regulatory scrutiny surrounding the de-SPAC process, and the potential for the current craze surrounding SPACs to inflate de-SPAC prices beyond fair value, eventually leading to a reversal.
The new ETFs follow the December 2020 launch of Tuttle’s SPAC and New Issue ETF (SPCX US) which specifically targets pre-deal SPACs using active management.