Yield Focused Premerger SPAC ETF Debuts

CrossingBridge Advisors believes it can find short-term yields higher than government bonds.

CrossingBridge Advisors is the latest to jump into the realm of SPACs, but with a fixed income focus.

The CrossingBridge Pre-Merger SPAC ETF (SPC) debuted on the Nasdaq Tuesday with an expense ratio of 0.80%.

The actively managed fund will buy into special-purpose acquisition companies, known more commonly by their acronym “SPACs,” when they are trading below its pro rata trust account value and sell within 10 days of a merger's closing.

SPACs are shell companies that are taken public for the sole purpose of merging with a private company. The vehicles typically appeal to companies seeking to go public faster and with less scrutiny than the initial public offering process, and to investors looking to profit off hype around a freshly renamed stock.

Bondlike Investment

SPACs keep assets in a trust holding Treasury bonds for safekeeping while its sponsors search for a suitable company to merge with. If that merger doesn’t happen within two years of its IPO, the vehicle dissolves and returns its assets to shareholders.

In an interview with ETF.com, CrossingBridge President David Sherman said that structure makes it behave like a short-term zero-coupon bond trading at a discount.

“If you're buying at a discount, you can calculate a yield-to-liquidation no different than you could calculate on a bond yield to maturity,” he said.

Investors can already get access to premerger SPACs through buying stock directly, and can get both active and passively managed exposure through the SPAC and New Issue ETF (SPCX), the Defiance Next Gen SPAC Derived ETF (SPAK) and the Morgan Creek - Exos SPAC Originated ETF (SPXZ). Those three ETFs carry a blend of SPACs and postmerger companies.

While SPACs were red hot in the last quarter of 2020 through March of this year, their popularity has waned due to several high-profile controversies surrounding SPAC darlings like Lordstown and Nikola. The Indxx SPAC & NextGen IPO Index, which holds both premerger SPAC stocks and recently completed mergers, is down 19.56% on the year.

So far, 151 SPACs are still searching for merger targets, and about $21 billion in trust value is held by companies that would yield more than 3% if liquidated, Sherman said.

Contact Dan Mika at [email protected], and follow him on Twitter