That most fashionable, but potentially volatile, of sectors, Special Purpose Acquisition Companies (SPACs) has seen enormous growth so far this year, with 133 SPACs, which are also known as blank cheque companies, floated in the US, raising USD51.1 billion, nearly four times last year’s volume, and a further 67 waiting to launch, according to Spac Research. Some 80 SPACs raised more than USD32 billion in Q3 2020.
Where there’s a new theme, Defiance ETFs are in, wedded as they are to being first movers in new markets. The firm has launched the SPAC ETF (SPAK), to run alongside their FIVG (5G ETF) and IBBJ (Junior Biotech ETF).
The new ETF brings diversity to a newly crowded sector, with an index built with Indxx. The ETF currently has 36 holdings, rebalanced on a quarterly basis. An 80 per cent weighting is applied to IPO companies derived from SPACs and 20 per cent is allocated to common stock of newly listed SPACs, ex-warrants. Newly listed companies derived from SPACs will be screened monthly and SPACs quarterly.
Paul Dellaquila, President of Defiance ETFs says: “We are always looking for ways to be a first mover and innovate and over the last year plus you have seen the maturation of the Spac market.”
SPACs are companies with no commercial operations that are established solely to raise capital from investors for the purpose of acquiring one or more operating businesses. This year has proved a challenge to the traditional IPO route, which relies heavily on road shows and meetings.
“The Covid era challenge has led to SPACs being an alternative to IPOs and it is quicker to market. A current private company can partner up, discuss terms and get a deal done in a fast time,” Dellaquila says.
“Investor interest and maturation of the market has allowed us to build SPAK and we believe it’s a space that will continue to grow and offer an alternative to the IPO market.”
Within the current portfolio are DraftKings, the largest provider of sports betting in the US, or Clarivate, an analytics company.
“With more money becoming available you can get higher quality companies and more prevalent names,” Dellaquila says. “Issuance wise you are finding some bigger players and with the ETF we are trying to provide exposure to the biggest and most liquid SPACs.”
The initial response to the ETF launch was assets of just over USD20 million, coming in from retail investors and financial advisers.
“The thinking is to focus on the pre-IPO SPACs that are going to pop in price,” Dellaquila says. “Some do a great job and others don’t so you need diversity across the space. This offers investors diversity rather than trying to find them themselves.”
The Funds' investment objectives, risks, charges, and expenses must be considered carefully before investing. The QTUM,FIVG,IBBJ, and SPAKprospectuses contain this and other important information about the investment company. Please read it carefully before investing. A hard copy of the prospectus can be requested by calling 833.333.9383.
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. The Funds are not actively managed and would not sell a security due to current or projected under performance 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 performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling (833.333.9383). Click here for funds performance: QTUM, FIVG,IBBJ, and SPAK
The securities of small-capitalization companies may be more vulnerable to adverse issuer, market, political, or economic developments than securities of large- or mid-capitalization companies. The success of biotechnology companies is highly dependent on the development, procurement and/or marketing of drugs. The values of biotechnology companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of biotechnology companies may be affected significantly by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights. The research and development and other costs associated with developing or procuring new drugs, products or technologies and the related intellectual property rights can be significant, and the results of such research and expenditures are unpredictable and may not necessarily lead to commercially successful products.
The possible applications of quantum computing and 5G technologies are only in the exploration stages, and the possible returns are uncertain and may not be realized in the near future.
Opinions expressed are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
FANG stocks is the acronym for Facebook, Amazon, Netflix and Google (now Alphabet, Inc.).
Dow Jones Industrial Average (DIJ) is a stock market index that shows how 30 large, publicly owned companies based in the United States have traded during a standard trading session in the stock market.
Alpha is a measure of the active return on an investment compared with a suitable market index.
References to other funds should not be considered an offer to buy or sell these securities.
The Defiance Next Gen Connectivity ETF is the first ETF to emphasize securities whose products and services are predominantly tied to the development of 5G networking and communication technologies. The fund does this by tracking The BlueStar 5G Communications Index. The Fund attempts to invest all, or substantially all, of its assets in the component securities that make up the Index.
Diversification does not ensure a profit nor protect against loss in a declining market.
It is not possible to invest directly in an index.
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.
SPAK is new with a limited operating history.
Commissions may be charged on trades.
The Defiance ETFs are distributed by Foreside Fund Services, LLC.