Editors note: This article was changed on Feb. 1 to correct information about the investment strategy and holdings of SPCX.
With the recent exception of Reddit stocks like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), special purpose acquisition companies are the hottest trend on Wall Street. Want to get in on the ground floor of hot companies? Buy into a SPAC. Want to get in on the ground floor of multiple hot companies at once? Try one of these recently public SPAC ETFs.
These SPACs, also known as blank-check companies, are setting records on Wall Street. In January alone, they have helped raise $63 billion through initial public offerings, as 200 new listings started trading. Although these statistics make the start of the year one of the buzziest yet, Bloomberg says the pace of new deals is still picking up.
Along those same lines, the Wall Street Journal reported that day traders are flocking to SPACs. Why? Blank-check companies are speculative, and the potential for returns is high. Just think about some of the deals we have seen thus far! SPACs are behind Fisker (NYSE:FSR), Talkspace, SoFi, 23andMe, Virgin Galactic (NYSE:SPCE) and tons more popular companies. As we have reported, this alternate path to the public markets is simply more appealing to many startups.
With all of this interest in special purpose acquisition companies, the market for exchange-traded funds is starting to catch up. In fact, another SPAC-focused ETF just started trading last week.
If you want to get in on a basket of popular deals, make sure these three SPAC ETFs are on your radar.
SPAC ETFs: Exos SPAC Originated ETF (SPXZ)
Expense Ratio: 1%, or $100 on an initial $10,000 investment
The Exos SPAC Originated ETF (NYSEARCA:SPXZ) fund from Morgan Creek just started trading on Jan. 25. That sounds like perfect timing given the record year for SPACs we are having! According to the investment team, this SPAC ETF is all about companies of the future.
So what else do you need to know? There are a few things about the investment strategy that stand out. To start, the company says it actively manages the SPXZ ETF to avoid poor-performing companies. It also targets equal dollar weights to keep any one company from having a huge impact. If you consider the wide range of special purpose acquisition companies that exist, that sounds like a smart plan. Additionally, SPXZ focuses on both pre- and post-combination SPACs, including the top 50 by market capitalization.
Although it includes a mix, investors should know that its top six holdings are all post-merger SPACs. That list includes Virgin Galactic, DraftKings (NASDAQ:DKNG) and Clover Health (NASDAQ:CLOV).
SPAC ETFs: Defiance NextGen SPAC IPO ETF (SPAK)
Expense Ratio: 0.45%
The Defiance NextGen SPAC IPO ETF (NYSEARCA:SPAK) bills itself as the first of the SPAC ETFs, offering investors exposure to top offerings. Similar to SPXZ, SPAK is all about the appeal of special purpose acquisition companies. It sees the alternate debut path as giving private companies more control, and as helping bring more emerging and red-hot names to the public market.
So how does the SPAK ETF work? According to Defiance, the fund tracks the Indxx SPAC & NextGen IPO Index. This is a passive, rules-based index tracking the performance of new blank-check companies, as well as their warrants. These rules include a 60% weighting to IPO companies that come from SPACs and a 40% weighting to common stock of new SPACs.
Investors should note that despite the different methodologies, SPXZ and SPAK have similar top holdings. DraftKings claims an 11% weight, while Virgin Galactic comes in at 5.1%. However, you will find Clarivate (NYSE:CCC) and Vivint Smart Home (NYSE:VVNT) as unique holdings.
SPAC ETFs: SPAC and New Issue ETF (SPCX)
Expense Ratio: 0.95%
The SPAC and New Issue ETF (NYSEARCA:SPCX) from Tuttle Tactical Management beat SPXZ to market by just a few weeks. However, this slight victory makes it the first of the SPAC ETFs to be actively managed.
Like the other funds on this list, SPCX is all about recognizing the excitement and potential in blank-check companies. According to Tuttle, SPACs are one of the most disruptive trends emerging in the stock market. Because of this, the SPCX ETF allows for an active, flexible portfolio of leading special purpose acquisition companies. In doing this, it invests in a combination of pre-merger companies.
So what does this actively managed strategy look like in the top holdings? Well, SPCX actually stands out quite a bit. The top holding is Churchill Capital IV (NYSE:CCIV), a blank-check company from Michael Klein. Other names on the list include Seven Oaks Acquisition (NASDAQ:SVOKU), a little-known SPAC focusing on environmental, social and governance investing, Social Capital Hedosophia IV (NYSE:IPOD) and Social Capital Hedosophia VI (NYSE:IPOF). Investors should note that CCIV, SVOKU, IPOD and IPOF do not yet have merger targets.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.
