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Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

<h2>KEY HIGHLIGHTS</h2>
<ul>
<li>SPACs on a slow March.&nbsp;Following a dismal February, the momentum in SPAC IPO pricings in March has not improved, based on the first 10 days of the month. Only seven SPAC IPOs have been priced to-date (less than one per day), bringing the total to 51 for the year. As the end of the first quarter approaches, we are a long way from the 298 IPOs that were closed in 1Q21. One slightly positive angle is that the average proceeds raised per IPO are up ~6% at $156 million from the $147 million in February, although this remains only about half the average capital raised per IPO (~$300M) by SPACs in 1Q 21. Meanwhile the pipeline of SPAC IPOs continues to shrink, which as we argued last week may not be a terrible thing given the oversaturation of the SPAC market, with 612 live SPACs still searching for targets.</li>
<li>More deal terminations than de-SPACs.&nbsp;Two small-cap de-SPACs have been completed so far this month. Quantum computing firm Rigetti Computing (RGTI) and cancer therapy company Alpha Tau became public entities with initial enterprise values of $1.15 billion and $660 million respectively. Three new de-SPAC deals have been announced so far this month, but there have also been three deal terminations in the past week, bringing the total number of terminations to 11 YTD.</li>
<li>The alternative way to play the SPAC market.&nbsp;Over the past 18 months, there have been several SPAC-related ETFs issued. At a time when picking winners among SPACs and de-SPACs has become very challenging, the creation of these ETFs provides alternative ways of playing the SPAC market. Our SPAC Talk Focus below explores the effectiveness of ETFs in SPAC investing.</li>
</ul>
<h2>SPAC STATISTICS</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/721/original/image_9959433421647217286582.png?1647217289" class="editor-image img-responsive" data-smartkarma-image-id="262721"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/722/original/image_42654642631647217300551.png?1647217301" class="editor-image img-responsive" data-smartkarma-image-id="262722"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/723/original/image_45028603441647217314375.png?1647217315" class="editor-image img-responsive" data-smartkarma-image-id="262723"></figure>
<p>Source: WTR Research</p>
<h2>SPAC/DE-SPAC RETURNS</h2>
<p>Table 1: Live IBCs (Initial Business Combinations)—Key Stats</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/724/original/image_28920213351647217348506.png?1647217349" class="editor-image img-responsive" data-smartkarma-image-id="262724"></figure>
<p>Source: WTR Research</p>
<p>Table 2: Top 5 Live IBCs by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/725/original/image_8612778061647217373137.png?1647217375" class="editor-image img-responsive" data-smartkarma-image-id="262725"></figure>
<p>Source: WTR Research</p>
<p>Table 3: Bottom 5 Live IBCs by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/726/original/image_66848456471647217413314.png?1647217415" class="editor-image img-responsive" data-smartkarma-image-id="262726"></figure>
<p>Source: WTR Research</p>
<p>Not much change in the top performers league, with DWAC and its Trump association continuing to prosper, although its share price has given up 20% since last week’s SPAC Talk. There are no outliers on the negative side. While two-thirds of the 107 pending de-SPACs are trading below the $10 threshold, the bottom five are all within the 3% range, which we would regard as normal, given the redemption rights afforded to SPAC IPO investors right up to the point of de-SPAC.</p>
<p>Table 4: De-SPACs—Key Stats</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/727/original/image_82343464381647217446169.png?1647217448" class="editor-image img-responsive" data-smartkarma-image-id="262727"></figure>
<p>Source: WTR Research</p>
<p>Table 5: Top 5 De-SPAC Performers by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/728/original/image_35162021491647217477889.png?1647217480" class="editor-image img-responsive" data-smartkarma-image-id="262728"></figure>
<p>Source: WTR Research</p>
<p>Table 6: Bottom 5 De-SPAC Performers by Share Price</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/729/original/image_411850080101647217504315.png?1647217506" class="editor-image img-responsive" data-smartkarma-image-id="262729"></figure>
<p>Source: WTR Research</p>
<h2>SPAC TALK FOCUS</h2>
<h2>Alternative Ways to Play the SPAC Market—Exploring the SPAC ETF Landscape</h2>
<p>SPACs have been around since the 1980s, while the first US-listed ETF (SPDR S&amp;P 500 ETF Trust) came to market in 1993. It could be argued that recognition of SPACs as a legitimate asset class began in earnest when the first US-listed ETF representing the sector was launched. That red letter day was on October 1, 2020, when&nbsp;The Defiance NextGen SPAC Derived ETF (SPAK)&nbsp;started trading on the NASDAQ. Since then, seven additional SPAC-related ETFs including one leveraged SPAC ETF, have been launched.</p>
<p>For an investor, picking SPACs/de-SPACs to maximize returns requires plenty of due-diligence and even than is a most challenging exercise, especially in the current environment. Going down the ETF route is easier and reduces risk. To this end, there are a variety of SPAC ETFs available to investors which reflect the different life cycles of a SPAC, and consequent variations in risk profile, from pre-deal to pre-merger to de-SPAC. Most of the ETFs are actively managed. Below, we highlight the key characteristics of these SPAC ETFs. One word of caution is that the US-listed SPAC ETFs manage just ~$170 million combined. That creates some challenges in terms of investibility while trading costs are still elevated, but they do enable investors to gain a broader-based exposure to this space.</p>
<h2>Pre-Deal/Pre-Merger SPAC ETFs</h2>
<p>In its pre-deal phase, a SPAC behaves like a fixed income substitute. SPACs are issued at $10 a share, and that $10 goes into a trust where it sits until a SPAC lands a deal. If the SPAC fails to make a deal, investors get that $10 back, plus interest. Thus, a pre-deal SPAC ETF can be regarded more like a bond alternative. As such, they are at the lower end of the SPAC ETF risk spectrum. In this category, there are currently three pure-play pre-merger SPAC ETFs.</p>
<p>The SPAC and New Issue ETF (SPCX):&nbsp;This ETF was the second SPAC ETF launched and the first actively managed SPAC fund. Its inception date was December 16, 2020. The investment thesis behind SPCX, managed by Tuttle Tactical Management, is that the fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in units and shares of SPACs that have a minimum capitalization of $100 million. The fund has a mandate to purchase units or shares of SPACs that have completed an IPO within the last two years on a secondary market or during a SPAC’s IPO, meaning that they will invest in pre-merger SPACs that have and have not announced deals. SPCX’s investment selection process is based on sponsor track records and valuations. The ETF currently has 130 holdings with net assets worth $47 million. The fund expense ratio at 0.95% is on the high side, but it has been the best performing SPAC ETF since inception, up 10%.</p>
<p>CrossingBridge Pre-Merger SPAC ETF (SPC):&nbsp;This is another actively managed ETF that pursues a similar strategy to SPCX. SPC will buy into SPACs when they are trading below pro rata trust account value and sell within 10 days of a merger's closing. CrossingBridge President David Sherman describes the ETF’s investment strategy as simply buying into a short-term zero-coupon bond which is trading at a discount. SPC was launched on September 21, 2021 so it has a very short track record. The ETF holds 330 positions with a total net asset value of ~$50 million. The expense ratio, at 0.80%, is lower than SPCX, and the ETF is up 2.5% since inception.</p>
<p>The Robinson Alternative Yield Pre-Merger SPAC ETF (SPAX):&nbsp;This is the smallest of the pre-merger SPAC ETFs with a total net asset value of ~$20 million across 129 positions. Like SPCX and SPC, SPAX’s objective is to maximize total return while minimizing downside risk. The ETF, launched on June 22, 2021, has an expense ratio of 0.85%, and is up 1.9% since inception.</p>
<h2>Post-Merger SPAC ETFs</h2>
<p>Once the SPAC completes its merger, the embedded protection that pre-merger SPACs have via equity owner redemption rights disappears. This lends itself to greater volatility. For now, there is only one pure play de-SPAC ETF available to investors.</p>
<p>The De-SPAC ETF (DSPC):&nbsp;This ETF was launched on May 19, 2021 and is passively managed under the auspices of Tuttle Capital Management. DSPC has equity ownership of the 25 largest de-SPACs with no individual holding greater than ~6% of the fund. DSPC has a net asset value of just $1.2 million, an expense ratio of 0.90%, and is down ~50% since inception.</p>
<p>Tuttle also offers the inverse de-SPAC ETF,&nbsp;the Short De-SPAC ETF (SOGU), the first ETF to offer pure-play short exposure to de-SPACs. This ETF seeks daily investment results, before fees and expenses, that approximately correspond to the inverse (-1x) of the daily performance of the De-SPAC Index. SOGU is appropriate for investors who are either looking to express a near-term view on the De-SPAC market, or who may be looking to hedge an existing long portfolio of De-SPACed stocks. Not surprisingly, this has been the star performer among the SPAC related ETFs, up 32% from launch.</p>
<h2>Other SPAC-Related ETFs</h2>
<p>There a couple of hybrid SPAC ETFs in issue, meaning that they incorporate a mix of SPACs and de-SPACs.</p>
<p>The First SPAC ETF (SPAK):&nbsp;As mentioned above, SPAK was the sector’s pioneer ETF. SPAK is the only index-based SPAC ETF in the market which considers market cap, free float and liquidity requirements in its selection process. The portfolio mix is 40% SPACs and 60% de-SPACs, with a gross expense ratio of 0.45%, the lowest of all the SPAC ETFs. Currently in the market, the ETF is small with its NAV at ~$20 million. It has lost almost one-third of its value since inception.</p>
<p>Morgan Creek—Exos SPAC Originated ETF (SPXZ):&nbsp;A hybrid ETF, SPXZ was launched on January 26, 2021. There is differentiation between SPXZ and SPAK. SPXZ targets equal dollar weights of a portfolio of companies so no one company can have an outsize effect on risk and return. Also, unlike SPAK, SPXZ is an actively managed ETF, with a higher mix of de-SPACs (two-thirds) in its portfolio. The ETF holds 102 positions. The strategy has underperformed SPAK, with SPXZ losing half its value since launch, while its NAV has shrunk to just $7.6 million. Furthermore, the ETF’s gross expense ratio is a high 1%.</p>
<p>There is also one US -listed SPAC arbitrage ETF currently in the market,&nbsp;Morgan Creek-Exos Active SPAC Arbitrage ETF (CSH). This seeks to capitalize on the nature of SPACs to help preserve capital and provide incremental return by protecting downside through the SPAC’s collateralization with T-Bills or equivalents, while monetizing equity options held in the portfolio. The fund’s strategy is to 1) acquire SPACs at a discount to their collateral value to seek to harvest an embedded return, 2) add or maintain exposure when SPACs are below their collateral value, and reduce exposure when SPACs are expensive, 3) monetize the value of any held warrants, 4) recycle capital from SPACs trading above collateral value to SPACs trading below collateral value, and 5) algorithmically transact SPACs to opportunistically capture or reduce bid/ask spreads. This is a new ETF that was launched only on February 1, 2022 with no meaningful track record of which to speak. Its expense ratio, at 1.25%, is high</p>
<p>Figure 1: CSH SPAC Arbitrage ETF—The Investment Strategy</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/731/original/image_382233538111647217556888.png?1647217558" class="editor-image img-responsive" data-smartkarma-image-id="262731"></figure>
<p>Source: Morgan Creek-Exos</p>
<p>There is another more established SPAC Arbitrage ETF, but it is a Canadian-listed ETF which invests in US SPACs and has been available to investors since April 7, 2022, which in fact predates the first US-listed SPAC ETF.</p>
<p>The Accelerate Arbitrage Fund (TSX: ARB)&nbsp;is a fund that aims to generate consistent, low volatility returns by investing in listed equity, debt, or derivative securities of target companies involved in mergers or corporate actions, while selling short certain listed equity, debt, or derivative securities of acquiror companies involved in mergers or corporate actions, where applicable. This ETF pursues an investment strategy that acquires shares or units of a SPAC at or below the NAV in order to generate a return through either 1) an exit at a premium to NAV once the SPAC announces a business combination, or 2) an exit at NAV, being the IPO price plus accrued interest, through a redemption before the deal vote or through the liquidation of the SPAC. This ETF is not a pure SPAC fund as it also incorporates non-SPAC merger arbitrage situations, although 81% of its portfolio is in the SPAC space. It has a decent track record, with an 18% return since inception, and an expense ratio of 0.95%, significantly lower than that of CSH.</p>
<h2>Performance</h2>
<p>Below, we summarize the performance of SPAC-related ETFs. Not surprisingly, DSPC is the worst-performing ETF and SOGU is the best, with the hybrid ETFs also under water since launch. The pre-merger arbitrage is the second-best performer with an annualized return of 16% since launch. By comparison, the average annualized return from all current live SPACs with announced mergers is 12%, while the average annualized return across the 222 companies that have been de-SPACed since the beginning of 2022 is a negative 96%. While underperforms DSPC a passively managed ETF, there is an argument for an actively managed de-SPAC ETF which could potentially generate better returns but is currently unavailable to investors.</p>
<p>Table 6: SPAC-Related ETF Comparisons</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/732/original/image_221058629121647217593190.png?1647217595" class="editor-image img-responsive" data-smartkarma-image-id="262732"></figure>
<p>Source: WTR Research</p>
<p>Figure 2: Performance Comparisons in the SPAC Sector</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/262/733/original/image_977577523131647217617481.png?1647217619" class="editor-image img-responsive" data-smartkarma-image-id="262733"></figure>
<p>Source: WTR Research</p>
<h2>DISCLOSURES</h2>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Robert Sassoon, who is the writer of this report, covers the Emerging Growth &amp; Special Situations sector for WTR. Mr. Sassoon and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>In certain instances, including this report, WTR will write research covering non-clients. Readers should assume that WTR may seek to turn these non-paying companies into paying clients. Likewise, WTR may seek to transform these non-clients into paying clients of it or of its affiliate, which provides services such as presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services of WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s potential research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors or agents shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY HIGHLIGHTS

SPACs on a slow March.&nbsp;Following a dismal February, the momentum in SPAC IPO pricings in March has not improved, based on the first 10 days of the month. Only seven SPAC IPOs have been priced to-date (less than one per day), bringing the total to 51 for the year. As the end of the first quarter approaches, we are a long way from the 298 IPOs that were closed in 1Q21. One slightly positive angle is that the average proceeds raised per IPO are up ~6% at $156 million from the $147 million in February, although this remains only about half the average capital raised per IPO (~$300M) by SPACs in 1Q 21. Meanwhile the pipeline of SPAC IPOs continues to shrink, which as we argued last week may not be a terrible thing given the oversaturation of the SPAC market, with 612 live SPACs still searching for targets.
More deal terminations than de-SPACs.&nbsp;Two small-cap de-SPACs have been completed so far this month. Quantum computing firm Rigetti Computing (RGTI) and cancer therapy company Alpha Tau became public entities with initial enterprise values of $1.15 billion and $660 million respectively. Three new de-SPAC deals have been announced so far this month, but there have also been three deal terminations in the past week, bringing the total number of terminations to 11 YTD.
The alternative way to play the SPAC market.&nbsp;Over the past 18 months, there have been several SPAC-related ETFs issued. At a time when picking winners among SPACs and de-SPACs has become very challenging, the creation of these ETFs provides alternative ways of playing the SPAC market. Our SPAC Talk Focus below explores the effectiveness of ETFs in SPAC investing.

SPAC STATISTICS



Source: WTR Research
SPAC/DE-SPAC RETURNS
Table 1: Live IBCs (Initial Business Combinations)—Key Stats

Source: WTR Research
Table 2: Top 5 Live IBCs by Share Price

Source: WTR Research
Table 3: Bottom 5 Live IBCs by Share Price

Source: WTR Research
Not much change in the top performers league, with DWAC and its Trump association continuing to prosper, although its share price has given up 20% since last week’s SPAC Talk. There are no outliers on the negative side. While two-thirds of the 107 pending de-SPACs are trading below the $10 threshold, the bottom five are all within the 3% range, which we would regard as normal, given the redemption rights afforded to SPAC IPO investors right up to the point of de-SPAC.
Table 4: De-SPACs—Key Stats

Source: WTR Research
Table 5: Top 5 De-SPAC Performers by Share Price

Source: WTR Research
Table 6: Bottom 5 De-SPAC Performers by Share Price

Source: WTR Research
SPAC TALK FOCUS
Alternative Ways to Play the SPAC Market—Exploring the SPAC ETF Landscape
SPACs have been around since the 1980s, while the first US-listed ETF (SPDR S&amp;P 500 ETF Trust) came to market in 1993. It could be argued that recognition of SPACs as a legitimate asset class began in earnest when the first US-listed ETF representing the sector was launched. That red letter day was on October 1, 2020, when&nbsp;The Defiance NextGen SPAC Derived ETF (SPAK)&nbsp;started trading on the NASDAQ. Since then, seven additional SPAC-related ETFs including one leveraged SPAC ETF, have been launched.
For an investor, picking SPACs/de-SPACs to maximize returns requires plenty of due-diligence and even than is a most challenging exercise, especially in the current environment. Going down the ETF route is easier and reduces risk. To this end, there are a variety of SPAC ETFs available to investors which reflect the different life cycles of a SPAC, and consequent variations in risk profile, from pre-deal to pre-merger to de-SPAC. Most of the ETFs are actively managed. Below, we highlight the key characteristics of these SPAC ETFs. One word of caution is that the US-listed SPAC ETFs manage just ~$170 million combined. That creates some challenges in terms of investibility while trading costs are still elevated, but they do enable investors to gain a broader-based exposure to this space.
Pre-Deal/Pre-Merger SPAC ETFs
In its pre-deal phase, a SPAC behaves like a fixed income substitute. SPACs are issued at $10 a share, and that $10 goes into a trust where it sits until a SPAC lands a deal. If the SPAC fails to make a deal, investors get that $10 back, plus interest. Thus, a pre-deal SPAC ETF can be regarded more like a bond alternative. As such, they are at the lower end of the SPAC ETF risk spectrum. In this category, there are currently three pure-play pre-merger SPAC ETFs.
The SPAC and New Issue ETF (SPCX):&nbsp;This ETF was the second SPAC ETF launched and the first actively managed SPAC fund. Its inception date was December 16, 2020. The investment thesis behind SPCX, managed by Tuttle Tactical Management, is that the fund will invest at least 80% of its net assets (plus any borrowings for investment purposes) in units and shares of SPACs that have a minimum capitalization of $100 million. The fund has a mandate to purchase units or shares of SPACs that have completed an IPO within the last two years on a secondary market or during a SPAC’s IPO, meaning that they will invest in pre-merger SPACs that have and have not announced deals. SPCX’s investment selection process is based on sponsor track records and valuations. The ETF currently has 130 holdings with net assets worth $47 million. The fund expense ratio at 0.95% is on the high side, but it has been the best performing SPAC ETF since inception, up 10%.
CrossingBridge Pre-Merger SPAC ETF (SPC):&nbsp;This is another actively managed ETF that pursues a similar strategy to SPCX. SPC will buy into SPACs when they are trading below pro rata trust account value and sell within 10 days of a merger's closing. CrossingBridge President David Sherman describes the ETF’s investment strategy as simply buying into a short-term zero-coupon bond which is trading at a discount. SPC was launched on September 21, 2021 so it has a very short track record. The ETF holds 330 positions with a total net asset value of ~$50 million. The expense ratio, at 0.80%, is lower than SPCX, and the ETF is up 2.5% since inception.
The Robinson Alternative Yield Pre-Merger SPAC ETF (SPAX):&nbsp;This is the smallest of the pre-merger SPAC ETFs with a total net asset value of ~$20 million across 129 positions. Like SPCX and SPC, SPAX’s objective is to maximize total return while minimizing downside risk. The ETF, launched on June 22, 2021, has an expense ratio of 0.85%, and is up 1.9% since inception.
Post-Merger SPAC ETFs
Once the SPAC completes its merger, the embedded protection that pre-merger SPACs have via equity owner redemption rights disappears. This lends itself to greater volatility. For now, there is only one pure play de-SPAC ETF available to investors.
The De-SPAC ETF (DSPC):&nbsp;This ETF was launched on May 19, 2021 and is passively managed under the auspices of Tuttle Capital Management. DSPC has equity ownership of the 25 largest de-SPACs with no individual holding greater than ~6% of the fund. DSPC has a net asset value of just $1.2 million, an expense ratio of 0.90%, and is down ~50% since inception.
Tuttle also offers the inverse de-SPAC ETF,&nbsp;the Short De-SPAC ETF (SOGU), the first ETF to offer pure-play short exposure to de-SPACs. This ETF seeks daily investment results, before fees and expenses, that approximately correspond to the inverse (-1x) of the daily performance of the De-SPAC Index. SOGU is appropriate for investors who are either looking to express a near-term view on the De-SPAC market, or who may be looking to hedge an existing long portfolio of De-SPACed stocks. Not surprisingly, this has been the star performer among the SPAC related ETFs, up 32% from launch.
Other SPAC-Related ETFs
There a couple of hybrid SPAC ETFs in issue, meaning that they incorporate a mix of SPACs and de-SPACs.
The First SPAC ETF (SPAK):&nbsp;As mentioned above, SPAK was the sector’s pioneer ETF. SPAK is the only index-based SPAC ETF in the market which considers market cap, free float and liquidity requirements in its selection process. The portfolio mix is 40% SPACs and 60% de-SPACs, with a gross expense ratio of 0.45%, the lowest of all the SPAC ETFs. Currently in the market, the ETF is small with its NAV at ~$20 million. It has lost almost one-third of its value since inception.
Morgan Creek—Exos SPAC Originated ETF (SPXZ):&nbsp;A hybrid ETF, SPXZ was launched on January 26, 2021. There is differentiation between SPXZ and SPAK. SPXZ targets equal dollar weights of a portfolio of companies so no one company can have an outsize effect on risk and return. Also, unlike SPAK, SPXZ is an actively managed ETF, with a higher mix of de-SPACs (two-thirds) in its portfolio. The ETF holds 102 positions. The strategy has underperformed SPAK, with SPXZ losing half its value since launch, while its NAV has shrunk to just $7.6 million. Furthermore, the ETF’s gross expense ratio is a high 1%.
There is also one US -listed SPAC arbitrage ETF currently in the market,&nbsp;Morgan Creek-Exos Active SPAC Arbitrage ETF (CSH). This seeks to capitalize on the nature of SPACs to help preserve capital and provide incremental return by protecting downside through the SPAC’s collateralization with T-Bills or equivalents, while monetizing equity options held in the portfolio. The fund’s strategy is to 1) acquire SPACs at a discount to their collateral value to seek to harvest an embedded return, 2) add or maintain exposure when SPACs are below their collateral value, and reduce exposure when SPACs are expensive, 3) monetize the value of any held warrants, 4) recycle capital from SPACs trading above collateral value to SPACs trading below collateral value, and 5) algorithmically transact SPACs to opportunistically capture or reduce bid/ask spreads. This is a new ETF that was launched only on February 1, 2022 with no meaningful track record of which to speak. Its expense ratio, at 1.25%, is high
Figure 1: CSH SPAC Arbitrage ETF—The Investment Strategy

Source: Morgan Creek-Exos
There is another more established SPAC Arbitrage ETF, but it is a Canadian-listed ETF which invests in US SPACs and has been available to investors since April 7, 2022, which in fact predates the first US-listed SPAC ETF.
The Accelerate Arbitrage Fund (TSX: ARB)&nbsp;is a fund that aims to generate consistent, low volatility returns by investing in listed equity, debt, or derivative securities of target companies involved in mergers or corporate actions, while selling short certain listed equity, debt, or derivative securities of acquiror companies involved in mergers or corporate actions, where applicable. This ETF pursues an investment strategy that acquires shares or units of a SPAC at or below the NAV in order to generate a return through either 1) an exit at a premium to NAV once the SPAC announces a business combination, or 2) an exit at NAV, being the IPO price plus accrued interest, through a redemption before the deal vote or through the liquidation of the SPAC. This ETF is not a pure SPAC fund as it also incorporates non-SPAC merger arbitrage situations, although 81% of its portfolio is in the SPAC space. It has a decent track record, with an 18% return since inception, and an expense ratio of 0.95%, significantly lower than that of CSH.
Performance
Below, we summarize the performance of SPAC-related ETFs. Not surprisingly, DSPC is the worst-performing ETF and SOGU is the best, with the hybrid ETFs also under water since launch. The pre-merger arbitrage is the second-best performer with an annualized return of 16% since launch. By comparison, the average annualized return from all current live SPACs with announced mergers is 12%, while the average annualized return across the 222 companies that have been de-SPACed since the beginning of 2022 is a negative 96%. While underperforms DSPC a passively managed ETF, there is an argument for an actively managed de-SPAC ETF which could potentially generate better returns but is currently unavailable to investors.
Table 6: SPAC-Related ETF Comparisons

Source: WTR Research
Figure 2: Performance Comparisons in the SPAC Sector

Source: WTR Research
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SPAC Talk: ETFs—The Alternative Way To Play SPACs

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SPAC Talk: ETFs—The Alternative Way To Play SPACs

KEY HIGHLIGHTS SPACs on a slow March. Following a dismal February, the momentum in SPAC IPO pricings in March has not improved, based on the first...

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