SPAC ETF Is In The Works, Appears Close To Launch

It's often said in this space that where there's a hot theme, an exchange-traded fund usually isn't far behind and that sentiment appears to be true of the Special Purpose Acquisition Company (SPAC) boom.

What Happened

Defiance ETFs filed plans with the Securities and Exchange Commission (SEC) for the Defiance NextGen SPAC IPO ETF and that filing indicates the fund will trade under the ticker “SPAK” on the New York Stock Exchange, signs that a launch could take place over the near-term.

SPAK will follow the Indxx SPAC & NextGen IPO Index. That's a cap-weighted benchmark that will be 80% allocated to blank check companies and 20% will be allocated to the firms those vehicles acquire and take public.

Although the filing for SPAK doesn't mention any of these names, examples of companies that have recently gone public via transactions with special purpose vehicles (SPVs) include DraftKings DKNG, Nikola NKLA and Virgin Galactic SPCE.

Why It's Important

Due in part to names like DraftKings, Nikola and Virgin Galactic, the SPAC initial public offering (IPO) market is blistering hot this year.

“So far this year, 48 SPACs have raised $17.1 billion, representing 40% of all dollars raised in the 2020 IPO market,” said IPO research firm Renaissance Capital in a July 23 note. “More SPACs have gone public than any other sector, leading healthcare (45 IPOs; $11.1B), technology (14; $4.0B), financials (7; $2.2B), and industrials (6; $4.3B).”

For all the fervor in the SPAC IPO market, not many ETFs hold shares of blank check companies. There are funds with positions in the likes of DraftKings and Nikola, but few hold pre-deal SPACs. An example of one that does have a stake in a SPAC is the Roundhill Sports Betting & iGaming ETF BETZ.

BETZ recently added a position in Landcadia Holdings II, Inc. LCA, which is slated to take Golden Nugget Online Gaming public sometime in the current current quarter.

Another example of a SPAC in a similar position is dMY Technology Group Inc. DMYT, which recently unveiled a $1.8 billion transaction to take Rush Street Interactive public. It remains to be seen if dMY will find its way into any ETFs.

What's Next

SPAK's underlying index will be rebalanced annually in December, but it can fast track entry of blank check IPOs within five to seven days of those offerings. SPACs can remain in the index until they fail to meet the benchmark's requirements.

The filing, which also details plans for the Defiance Indxx Junior Semiconductor ETF (SMHJ), doesn't contain an expense ratio for SPAK.

Well-known Defiance ETFs include the Defiance 5G Next Gen Connectivity ETF FIVG and the Defiance Quantum ETF QTUM.

Todd Shriber owns shares of DraftKings.