First-mover fund promises diversified exposure that reduces complexity, risk in SPAC selection
Riding on the wave of special purpose acquisition companies (SPACs) that has washed over the U.S. stock market, Defiance ETFs has launched the first SPAC ETF.
The firm has launched the Defiance Next Gen SPAC Derived ETF on the New York Stock Exchange, with the ticker symbol SPAK.
“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 firm said in a statement.
SPACs have become a go-to vehicle for private firms looking to go public without the hassle of the traditional IPO process. Investors, meanwhile, are looking at SPACs as a way to potentially get a stake in the stock market’s next great success story.
But as noted by the Wall Street Journal, dozens of blank-check companies are on the hunt for an acquisition, which makes SPAC selection problematic for investors. Blank-check companies may also issue a combination of shares and warrants to their investors, adding another potential layer of confusion.
“SPACs can be very complicated for individual investors,” Matthew Bielski, CEO of Defiance ETFs, told the Journal in an interview. “ETFs are the best way to get exposure to that.”
According to Bielski, SPAK will have an 80% weighting toward companies that have already gone public through SPACS, including DraftKings and Virgin Galactic. The remaining allocation will be in blank-check companies that are still hunting for acquisitions.
Given the lower level of scrutiny that critics say SPACs are subject to, investors in blank-check firms also run the risk of getting burned when an acquisition turns out to be problematic, such as besieged electric truck maker Nikola. Aside from diversifying across SPACs, Bielski said Defiance’s new ETF will remove companies that fall under government investigation.
