As investors, we’re always looking for the next big company to invest in.
Traditionally, companies go public on the stock market using an initial public offering, or IPO.
However, special purpose acquisition companies, or SPACs, offer a unique alternative that allows both financial advisors and retail investors to benefit from exciting new companies.
In most cases, IPOs are only really available to large financial institutions.
This makes it difficult for individual investors to benefit from these exciting new companies.
When stocks first launch after their IPO, their shares are much more expensive, making it harder for the average investor to get good returns.
Investing in an SPAC is a great alternative to this.
A SPAC is a publicly traded company that raises money to eventually purchase a private company.
They are sometimes referred to as blank check companies.
SPACs are typically sponsored by experienced investors with a good reputation in the financial industry.
They aren’t legally allowed to specify which company they want to acquire, so they rely on the reputations of their sponsors to draw investors.
SPACs allow retail investors to participate in public market launches of exciting companies.
They typically trade at very affordable prices, so there’s a low barrier to entry.
When they eventually buy a company and help launch their IPO, their stock will likely go up dramatically, giving investors huge returns.
We’ve seen this happen with a few exciting companies before.
For example, SPACs purchased both Virgin Galactic and DraftKings. Both of these are now very successful stocks.
SPACs are a red-hot investment trend right now.
They make for a great long-term investment and have an affordable price point.
Here’s what you need to know about the SPAC market and how to invest.
Best SPAC ETF
Defiance NextGen SPAC Derived ETF (SPAK)
SPACs do come with some inherent risk, because you can’t be sure of their timeline for acquiring a new company.
However, you can minimize this risk by investing in the Defiance NextGen SPAC ETF.
An ETF, or exchange traded fund, is a diversified basket of investments in a certain sector.
In this case, the ETF invests in the top SPACs on the market for a diversified portfolio.
This way, you get the benefits of investing in a SPAC, but with minimal financial risk.
It doesn’t matter if you have $500 or $5 million.
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The SPAK ETF is mostly comprised of companies that began as SPACs but have now been fully launched, such as the aforementioned Virgin Galactic.
This minimizes the risk of investing even more, as these companies are already very successful in many cases.
The remaining 20 percent of this diversified basket consists of blank check companies that haven’t had their acquisition yet.
The SPAK ETF only launched in October of 2020, but so far it has been performing well.
An initial drop in November proved difficult, however the ETF bounced back in a big way in December.
This upward trajectory has resulted in a return of over 12 percent for SPAK investors.
Tuttle SPAC and New Issue ETF (SPCX)
Tuttle Tactical Management launched a new SPAC ETF in mid-December 2020.
Since this ETF is brand new, we haven’t seen how it will perform on the market yet.
However, it offers an exciting new strategy that the SPAK does not.
SPAK invests in companies that began as SPACs.
This new ETF from Tuttle takes a different approach by investing only in blank check companies that haven’t yet launched.
This allows investors to access more of these exciting SPACs in one place.
This does inherently come with more risk for investors.
However, Tuttle’s management have indicated that they don’t think SPACs are going anywhere.
If you want to go all-in on the SPAC craze, this may be the ETF for you.
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Should You Buy A SPAC ETF
SPACs are going to be one of the hottest ETF trends over the next few years.
Investors are moving away from the IPO private equity style of investing, which can be very exclusionary.
SPACs and SPAC ETFs allow retail investors to participate in the beginnings of exciting new companies.
One of the benefits of investing in a SPAC ETF is that they are very reasonably priced.
While it can be very expensive to participate in an IPO, that isn’t the case with SPACs. Shares are typically between $10 and $30.
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Other SPACs To Consider
If you’re looking to invest in SPACs directly, you have plenty of options. Some of the most popular SPACs include:
- 1. Pershing Square Tontine Holdings Ltd. (NSYE: PSTH)
- 2. Social Capital Hedosophia Holdings Corp IV (NYSE: IPOD)
- 3. Social Capital Hedosophia Holdings Corp V (NYSE: IPOE)
- 4. Social Capital Hedosophia Holdings Corp VI (NYSE: IPOF)
All of these stocks are very similar in that reputable sponsors run them.
For example, Social Capital Hedosophia was the group that brought Virgin Galactic public in 2019.
The share prices for these SPACS are all very affordable right now.
However, they have the potential to make a dramatic jump upwards when they eventually complete their acquisitions.
Keep in mind that it may take years before these companies come to fruition, so these should be a long-term investment.
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SPAC ETFs: Final Thoughts
SPACs are one of the hottest investment trends right now.
However, we think companies are going to use SPACs to go public for years to come.
If you’ve always wanted to get in on an IPO but have been shut out by larger financial advisors, a SPAC is your chance to do something similar.
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