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SPAK - Defiance NextGen SPAC IPO ETF


Gregmal
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I believe the above is one of the most attractive current short plays in the market today. It offers you a basket(look at the holdings) of utter dog shit. All highly inflated SPAC deals, post deal...the stuff nightmares are made of. Not only is it pre-basketized for you, but its currently the most efficient way to short the underlying names from a cost and borrow availability perspective.

 

Simple write up, for a simple idea. If anyone currently has any better ideas for shorting what is currently the most obvious bubble in the market, feel free to chime in. Ticker just hit 52 week high today at $28.14. ~10% borrow cost.

 

Disclosure, yes, I shorted this today and reserve the right to transact here on either side, at any time. Feel free to join me and drive up the borrow cost...

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"The investment seeks to track the total return performance, before fees and expenses, of the Indxx SPAC & NextGen IPO Index. The fund uses a "passive management" approach to track the total return performance, before fees and expenses, of the index. The index tracks the performance of the U.S.-listed common stock of SPACs and companies derived from blank check companies are companies with no commercial operations that are established solely to raise capital from investors for the purpose of acquiring one or more operating businesses. It invests at least 80% of its net assets in SPACs and SPAC-derived companies. The fund is non-diversified."

https://finance.yahoo.com/quote/SPAK/holdings?p=SPAK

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Its a new ETF, just came out a couple months ago, but I believe the rebalance is quarterly. I intend to keep an eye on it but have the utmost faith that these guys will do their best to keep the hottest, highest flying pieces of shit in here.

 

It could very well be a good short on the bottom 50-60% of holdings. But just from the top 10 holdings, CCC, VRT seem to be legit companies led by decent management teams (former IHS and HON CEO's as chairmains) and having rev. DKNG seems to have all the hype and possible dreamy growth and sell side on its side. Don't know about the smaller ones though.

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Just my quick look, but Vertiv just did a secondary where even more PE blew out of the name. DraftKing is at best structurally challenged, and Clarivate I do agree is interesting. This speaks nothing of the valuations on any of these(insane), nor the fact they just consummated PE and sponsor negotiated deals at valuations 50%+ lower than current market values, most carry tons of debt, and in general, still have lots of overhang in terms of PE and warrants. I think the diversification is a plus on the short side. I've gotten smacked around enough in my career shorting individual names. I wish they could make something like this for every theme I wanted to short.

 

I also think that as they rebalance quarterly there will be an unintended benefit that theyre going to be buying high on the in favor RH names.

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Number of SPACs launched

 

2016-20

2017-62

2018-63

2019-86

2020-335 and counting

 

 

Whats more, is that these are all competing for the same thing. Of which there is finite supply, and over time, less and less quality as more deals get consummated. Nevertheless the incentives still force sponsors to push deals through, essentially compounding the level of crappiness. It seems virtually impossible for this thing to not collapse upon itself. We already have every hallmark of a mania, from euphoria to fraud. No revenue companies, no concept companies, companies who have only existed for a few years. Robust retail demand. Incentive for everyone. This is the next big short. IMO we're currently in late 2006.

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Greg - interesting idea. Wish the options pool was a bit deeper. May just feels too close for this one to work out. Definitely goes on my watch list.

 

As a side note, am I reading this correctly in their prospectus. They will hold common only (bottom of page 2).

https://www.defianceetfs.com/spak/IndexMethodologyGuide

 

Does that mean they will sell off warrants? Could be some forced selling opportunities.

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Yes, no warrants here. Fund composition is 80% post deal, 20% pre deal apparently as well. Which I think works in ones favor as well because over time this diversifies out of a couple names that may rip your face off and into a pool that as touched upon above, should deteriorate significantly in terms of quality as time goes on.

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I am wondering if this might be too early. This is a really small ETF right now, and if it catches on, the reflexive impact of fund flows into this ETF might be drastic, sort of like JETS....

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Offtopic but somewhat related question.

 

I'm looking at individual SPACs (say GHIV) and looking at the January option chain, puts are trading at 1.45. If they decide on a deal, it will definitely take them more than 30 days to close so why are puts so exuberantly priced? What am I missing?

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Offtopic but somewhat related question.

 

I'm looking at individual SPACs (say GHIV) and looking at the January option chain, puts are trading at 1.45. If they decide on a deal, it will definitely take them more than 30 days to close so why are puts so exuberantly priced? What am I missing?

 

Answered my own confusion. Gores has Gores IV (GHIV) and Gores VI (GRSVU). I got confused thinking GHIV was the latest SPAC that just IPOed. Gores IV already found a business to buy.

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Yea watch out for multiple names of same issuer. Social Capital has like 5.

 

On being early...probably. But part of that is alleviated by the ETF rather than targeting individual companies. The other part is reconciled with position sizing. I hope it doesnt double or triple(or worse), but if it does, I'm currently positioned for that, as much as one can be, taking a short position. We are definitely not in the first inning of those mania though. As I suggested before, the deals should either dry up or start getting so outrageous that its impossible to ignore, probably by this time next year once you've got 500+ spac live.

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  • 3 weeks later...

Just my quick look, but Vertiv just did a secondary where even more PE blew out of the name. DraftKing is at best structurally challenged, and Clarivate I do agree is interesting. This speaks nothing of the valuations on any of these(insane), nor the fact they just consummated PE and sponsor negotiated deals at valuations 50%+ lower than current market values, most carry tons of debt, and in general, still have lots of overhang in terms of PE and warrants. I think the diversification is a plus on the short side. I've gotten smacked around enough in my career shorting individual names. I wish they could make something like this for every theme I wanted to short.

 

I also think that as they rebalance quarterly there will be an unintended benefit that theyre going to be buying high on the in favor RH names.

 

Gregmal,

Recently i listened to a podcast on Clarivate's current CEO. The podcast is more about the CEO then Clarivate, but the way i usually invest it is more about learning about the integrity of the top guy. The CEO is my type of guy.

 

https://www.theice.com/insights/conversations/inside-the-ice-house/clarivate-ceo-jerre-stead-raises-the-value-of-companies-by-trusting-people 

 

The company is interestingly was used to be own by Reuters, and Onex (Canadian private equity) help to curve it out some years ago and now are in process of cashing out slowly. Just wondering if you had any additional insight on Clarivate.

 

"In June, Onex Partners sold approximately 20.8 million shares of Clarivate (NYSE: CCC)

at a price of $22.50 per share. Onex’ share of the net proceeds was $171 million as a Limited

Partner in Onex Partners IV and as a co-investor. "

 

"Onex received more than $1.2 billion in realizations and distributions from its private equity

investments in 2019 – the second largest amount in our history – mainly driven by Onex

Partners’ secondary share sales of Clarivate Analytics and SIG Combibloc Group and the

sales of Jack’s Family Restaurants and BrightSpring Health."

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Thanks. I will put it on the list. The benefit of the ETF is muting out the occasional outlier that could be Clarivate or and AYR type. The PE exits also sometimes can be catalysts. I remember watching all the shorts on VIC get excited because Roark Capital blew out of Wingstop between $25-30, and we all know what happened after that.

 

Also for those interested, SPCX just debuted, and is IMO a much safer pre spac deal ETF that could be interesting.

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