ETF NEWS - ULTUMUS

Active SPAC

Written by Bernie Thurston | 13 July 2022

Actively managed SPAC ETF 

RiverNorth and TrueMark have teamed up to launch an actively managed ETF that invests in pre-combination SPACs.  

 

The RiverNorth Enhanced Pre-Merger SPAC ETF (SPCZ) will invest in SPACs based on top-down and bottom-up analyses of acquisition targets and the overarching SPAC market.

 

 

RiverNorth will look at things like valuations of the target companies, the expertise of the SPAC sponsor, the relative value of one SPAC versus other SPACs, and market conditions.  

 

RiverNorth will do the portfolio management and pick which SPACs the fund buys. While TrueMark will run the ETF and face the regulator.  

 

The fund can use leverage to buy more SPACs if it desires.  

 

Fees are undisclosed.  

 

Bernie’s commentary – potentially expensive  

SPACs were popular in the zero-interest rate aftermath of the covid-19 pandemic. With armies of retail investors believing “stocks only go up”, venture capitalists brought often dubious companies onto exchanges via SPACs knowing there’d be plenty of retail flow they could trade into.  

 

Since interest rates started rising and gravity returned to the market, the SPAC index has fallen 50%. Celebrity SPAC promoters like Bill Ackman have left the building. So if recent performance and changing sentiment is any guide, this ETF could struggle to find followers.

 

Another point of contention for me is that it's unclear what value active management adds here. Most SPACs buy technology, consumer discretionary, or biotech companies. Active management doesn’t beat index investing anywhere else in these sectors. So why should SPACs be different?  And why should this active SPAC ETF be preferable to index-tracking alternatives, like Defiance's SPAK?

 

I am also slightly worried about the fees. Why aren’t they published in the prospectus on the SEC’s website? SPACs often charge very high underwriting fees, which lower performance. They can truly be quite expensive. (Read this.) Meaning, that if this is a high fee actively managed ETF (as I suspect it will be), and if it also has to eat the SPAC expenses on top of that, this could be a very expensive ETF indeed.