Special Purpose Acquisition Companies (SPACs) have recently encountered difficulties. Investors may want to remain flexible in the space with active management and the SPAC and New Issue ETFs (SPCX).
According to Tuttle, the most appropriate strategy for managing an SPAC portfolio is through active management, as it can be more flexible to react to changing market events. This is not a place for an index fund based on a rigid set of rules. When considering investing in an SPAC, it is essential to focus on the management team.
âWe remain cautious in evaluating post-merger performance because most of the SAVS listed in 2020 and 2021 are still looking for targets. As the number of PSPCs proliferates, it will be worth monitoring their performance after the merger, âaccording to S&P Dow Jones Indices.
‘SPCX’ could be special again
Choosing individual PSPC winners can be very difficult. The ETF structure allows investors to access the most liquid SPAC IPOs in a diversified basket. SPCX allows both financial advisors and retail investors to participate in an IPO private equity style of investing. These are significant traits as many post-merger companies struggle after the PSPC deals, highlighting the potential benefits of avoiding the selection of individual names and taking the active approach of SPCX.
Competition is fierce in the PSPC landscape, and differentiation is important for vendors looking to separate themselves from the masses.
SPACs have grown in popularity as they attract more and more credible and valuable sponsors. As the quality of their founders and the success of their merger companies increase, so does their integrity within the wider investment community.
See also: ETF of the week: SPAC & New Issue ETF (SPCX)
âAfter the deal was announced, the distribution of excess returns was taken to extremes, with significant positive and negative excess returns observed. The average excess return, however, was around 0. Holding PSPCs 30 days after the trade was announced, in general, led to an underperformance against the S&P SmallCap 600, âadds S&P Dow Jones.
Blank check companies are all the rage because the IPO process is institutionalized, cumbersome and inflexible, especially to adapt to the reality of Covid-19 where virtual roadshows are less effective. With PSPCs, there is another route for a business to go public, which can be cheaper, faster, more transparent, and involves agreements and processes as part of greater reach and a greater control of the company.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.