This year has seen a massive uptick of SPAC activity in IPO issuance which came with increased investor and media interest as many of the announced/closed deals emerged from the de-SPAC process going on to great success. Investors are piling in to SPACs earlier, pushing up prices post-LOI and now, even pre-LOI. Plus, SPAC teams are announcing deals faster than ever, with some of the quickest deal announcements taking less than 60 days from IPO. Since many of these SPACs have 24 months to liquidation that means teams are getting incredibly efficient in finding their acquisition targets.
However, back around the midpoint of this year we noticed that enough SPACs were performing so well that tracking a basket of them could be interesting, and more importantly, how do SPACs perform against the broader market? We started tracking returns of the currently trading acquisition companies from July 2020 to current, and discovered that the portfolio not only generated a positive return, but outperformed the S&P 500.
As a result, we created the SPAC Index, or “SPACDex”, our return tracker which has every tradable SPAC, along with its rights and warrants included in the total return. To put a sharper point on this, the SPACDex is only comprised of SPACs that have yet to close their combination. Once closed, a SPAC is removed from the SPACDex.
Additionally, the graph includes a Market Cap Weighted return and Equal Weight return to compare with the S&P 500 and the initial cost basis is $10/Unit, which is what an investor would pay for the unit at IPO.
A few minor notes on this chart are that if you hover over a data point, it will reveal the date and the return for that day. Furthermore, if you would like to zoom in on a specific time period, just highlight with your mouse the specific section you would like to look at and the chart will adjust. If you want to revert back to the full graph, just right click the chart to reset.
Some finer points on methodology:
- Market Cap Weighted return includes an adjustment for free float
- Day 1 of tracking includes the existing SPACs at a cost basis of $10/Unit to stay consistent with the rest of the time period
- All warrants and rights are adjusted for their size, i.e., if a warrant is 1/2 or 1/5, that is taking into account when calculating a return.
- ENPC, PHIC and PSTH returns were adjusted for their $25/Unit and $20/Unit IPO prices
- Once a company emerges from the de-SPAC process and closes its deal, it is removed from the index.
As you can see, the SPACDex Market Cap Weighted return is the best performing basket in our simulated portfolio. This makes sense considering many of the top performing SPACs have also been the largest offerings. Also observable is that an equal weight calculation outperforms the S&P 500 index over this time period. The return of this portfolio saw a peak of near 60% from September to October due to high performing SPACs like Tortoise/Hyliion and Graf/Velodyne. Around the presidential election of this year returns between the Market Cap and Equal Weight portfolio were dampened along with the S&P 500 but remained higher than the benchmark index. The current trend upward in returns is driven by high performing SPACs like CIIG/Arrival and Switchback/Chargepoint.
As this sector continues to see interest from institutional and retail investors, it is conceivable that the performance of SPACs continues to outpace the broader market. Making this trend more interesting is the fact that there are so few SPACs that are worth less than $10/Unit when including the rights and warrants, a risk reducing trait the broader market does not share with this portfolio.
You can find our SPACDex now on the Statistics page HERE, which will be updated daily.