The chief investment officer of an actively managed SPAC ETF breaks down his 3-part strategy for picking outperforming blank-check companies — and shares 3 of his favorites
- Matthew Tuttle is the chief executive and chief investment officer of Tuttle Tactical Management.
- He manages the $147.2 million SPAC and New Issue ETF, which has returned 12.94% this year.
- Tuttle shares his three-part SPAC picking strategy and three of his favorite blank-check companies.
- Visit the Business section of Insider for more stories.
Just like the newly filed Do It Again Corp., SPACs are doing it again — breaking the record month after month.
According to Goldman Sachs, 90 Special Purpose Acquisition Companies raised $32 billion in IPO capital in February, the largest issuance month on record. Year-to-date, 204 blank-check companies have raised $65.4 billion compared to the $83.4 billion raised by the 248 SPACs last year, according to SPAC Research.
“The blistering pace of issuance is likely unsustainable. However, if the current pace of issuance persists, 2021 will surpass the 2020 full-year total before the end of March,” Goldman’s Chief US Equity Strategist David Kostin said in a Tuesday client note.
Besides the obvious boom in SPAC issuance, 2021 has also seen record deal announcements for SPACs, according to Goldman. Specifically, 43 SPACs have announced acquisitions as of March 1 this year, amounting to $123 billion in enterprise value and nearing the $156 billion in enterprise value across 93 deals last year.
With SPAC-related activities going on in all corners of the market, investors, unsurprisingly, have come up with more creative ways to play the mania than the simple buy-and-hold investing strategy and the popular arbitrage strategy.
Matthew Tuttle, chief executive and chief investment officer of Tuttle Tactical Management, has devised at least three ways to play SPACs.
The principal method is through his actively-managed SPAC and New Issue ETF (SPCX), which focuses solely on pre-merger SPACs. Launched in December, the $147.2 million ETF has returned 12.94% this year as of Tuesday, according to Morningstar data.
Tuttle’s firm recently also filed for the index-tracking De-SPAC ETF and the Short De-SPAC ETF, which allow investors to bet on or against SPACs that have merged with their acquisition targets.
“There’s a huge difference between a pre-merger SPAC versus a post-merger SPAC,” Tuttle said in an interview. “We still think that there can be a place in someone’s portfolio for post-merger SPACs, but those are momentum stocks at the end of the day.”
He admits that the market has become a little bit frothy as the number of SPACs has mushroomed while riskier and unprofitable companies have gone public through SPACs. However, that’s also why providing a way to short post-merger SPACs could come in handy someday.
Indeed, many SPACs have fallen into correction territory over the past two weeks. The IPOX SPAC index was down almost 20% since its peak in late February. As a result, more SPACs are also trading below net asset value for the first time in a while, unlocking buy-the-dip and arbitrage opportunities for observant investors.
3-part SPAC-picking strategy
With the two index-tracking SPAC ETFs in the works, Tuttle has focused on managing the SPAC and New Issue ETF, which currently holds 81 pre-merger SPACs.
He said the SPAC boom has lengthened his working hours but a great team has allowed him to cover all the bases.
To make sure he doesn’t miss the best deals coming out of the floodgate, Tuttle said he always looks at three aspects of any SPAC — the management team, their track record, and the valuation.
It is not only important to check the management team but also crucial to examine their experiences and backgrounds. “Is it just something gimmicky or are these real people that have put deals together,” he said.
Because of the SPAC boom, many sponsors have taken on more than one SPAC, with billionaire Chamath Palihapitiya being the man with six SPACs. That allows investors to scrutinize the track record of how a sponsor’s previous SPACs have performed.
Valuation has also become an important metric as a large number of SPACs has seen shares, which are usually priced at $10 per unit, surge more than 10% on their first days of trading even before sponsors start their searching process for acquisition targets.
For example, Churchill Capital IV Corp. had soared over 500% from its IPO before plunging 42% last week as soon as it announced its deal with Lucid Motors. It traded at $6.78 a share as of Tuesday afternoon.
“Having a $10 floor is great when you’ve got something at $11,” he said. “It’s kind of meaningless when something’s at $40.”
3 of his favorite SPACs
SPAC investing can be somewhat of a wait-and-see game once investors snap up their shares and wait for deals to come through, but Tuttle has found three of his favorites using his evaluation strategy.
1. Starboard Value Acquisition Corp. (SVAC)
This SPAC is a unique situation for Tuttle because it has already announced a deal with Cyxtera Technologies. While Tuttle typically sells out of SPACs after their mergers are announced, he held onto SVAC out of the belief that Cyxtera is undervalued.
He believes that the SPAC, which was trading at around $10.09 a share Tuesday afternoon, can rise to $20 a share.
“We just think Wall Street is not seeing it on this one,” he said. “We figured the risk-reward here makes a ton of sense and we’ve got a lot of upside.”
2. CRHC Cohn Robbins Holdings Corp. (CRHC)
Backed by Gary Cohn, the former Goldman Sachs president who is now the vice-chairman of IBM, this SPAC touts a high-pedigreed management team, Tuttle said.
He adds that the blank-check company also has a good valuation, trading at around $10.30 a share Tuesday afternoon.
“If you can get to somewhere in that $10.50 level,” he said. “It’s got a 5% downside and unlimited upside. It’s not a bad deal.”
3. CC Neuberger Principal Holdings II (PRPB)
Supported by finance veterans, this SPAC has a well-connected management team and boasts a good valuation as well, Tuttle said. The SPAC was exchanging hands at around $10.36 a share in Tuesday afternoon trading.
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