ETF fund manager Defiance ETFs has launched the first thematic ETF that covers the increasing market for SPACs (Special Purpose Acquisition Corporations). Also called cash shells in the UK, these are listed companies that are launched with the intention of making one of more acquisitions in a specific sector.
The Defiance Next Gen SPAC Derived ETF is following the Indxx SPAC & NextGen IPO index, a passive, rules-based index that tracks the performance of the common stock of newly issued SPACs, as well as ex-warrants and IPOs derived from SPAC listings.
Founded in 2018, Defiance ETFs sponsors ETF products and is a registered investment advisor that is focused on thematic investing. It has a suite of rules-based ETFs that allow retail investors to express targeted views on dynamic sub-sectors that are leading the way with disruptive innovations. The new ETF has been listed in New York under the SPAK designation.
Defiance ETFs also has a 5G ETF (NYSE:FIVG) and a Junior Biotech ETF (IBBJ).
Picking SPAC winners can be a tough proposition
Picking the winners of individual SPACs can be very difficult, however the ETF structure allows investors to access the most liquid SPAC IPOs in a diversified basket. The SPAK ETF allows financial advisors and retail investors to participate in IPO private equity style investing, which until now was really only available to financial institutions.
SPACs are not a new approach to investing. They currently represent a way for investors to bring unlisted companies onto the stock market by listing a cash shell first, which then goes on to buy one or more targeted companies. Currently many SPACs are being listed to target opportunities in industries where there are a large number of unlisted opportunities, technology for example. SPACs can be a cheaper way to get a company to the public markets than an IPO.
A recent example is Playboy Enterprises Inc, which is coming back onto the market after a nine year hiatus. This is being achieved in conjunction with a SPAC called Mountain Crest Acquisition Corp. Mountain Crest raised $50m this year with the goal of acquiring a private company.
The SPAC route is proving attractive for managers of alternative investment funds, as it can be an easier way to raise capital than the tried and tested private equity route. Apollo Global Management recently announced the launch of its own SPAC, which is looking to raise $860m.
As the market becomes wider and deeper, so enough opportunities are being created for the launch of a thematic ETF like the one Defiance has brought to the market.
Defiance ETFs specialises in the development of thematic ETFs. These are funds which still track an index, but use a much more specialised index than the mainstream stock market indexes. Their expertise with thematic ETFs is demonstrated with the other products Defiance ETFs has on the shelf. For example, its Next Gen Connectivity ETF (FIVG) follows listed companies that could play an important role in the 5G technology revolution.