- Morgan Creek Capital Management launched the third ETF to capitalize on the SPAC boom.
- Founder Mark Yusko breaks down the strategy and outlines how it could be beneficial in a bear market.
- Yusko, a crypto bull, shares 3 other sectors to keep an eye out for amid the SPAC frenzy.
- Visit Insider’s Business section for more stories.
Special Purpose Acquisition Companies were among the most talked about investment trends in the past year. After all, according to SPAC Insider, the launches of SPAC in 2020 have more than tripled compared to 2019.
Everyone seems to have one, from Colin Kaepernick to Bill Ackman to Billy Beane. Now they are even the subject of a rap song called “SPAC Dream”, which has more than 98,000 YouTube views.
In addition to the rapid rise of SPACs, there is a new class of exchange-traded funds with investment strategies targeting blank check companies.
The Morgan Creek – Exos SPAC Originated ETF (SPXZ) is one of the launches. With $ 47 million in assets under management, this is Morgan Creek Capital Management’s first product for retail investors.
Its strategy differs from the two ETFs that preceded it: the SPAC and New Issue ETF (SPCX) and the Defiance Next Gen SPAC Derived ETF (SPAK). But in some ways, all three complement each other, said Mark Yusko, Morgan Creek Capital Management’s founder and chief investment officer.
SPXZ mainly invests in post-IPO SPACs and some pre-IPO SPACs using an active approach. Each holding in the fund is equally weighted, a strategy that Yusko says is well positioned for the shift from a bull market to a bear market in stocks.
“We firmly believe that markets are very, very valued by many measures,” said Yusko. “The most overrated they’ve ever been in history and I’m absolutely worried about that.”
When the cycle ends, momentum strategies that tend to chase the most expensive stocks will fade and equal-weighted strategies will shine, Yusko said.
In this overvalued environment, Yusko said investors should focus on the following three components to reduce risk:
- Equal weighting
- Value
- Disciplined balance
“I think you want to avoid single-directional bets that can reverse very quickly,” said Yusko. That said, how long can a bubble last? Probably longer than we all think. ‘
Betting in one direction is risky right now, because if valuations fall, especially in an environment where prices are also normalizing, even a small move could significantly alter the discount model, making valuations materially overpowered today, Yusko said.
Choose SPACs
Yusko’s team selects SPACs from a mix of quantitative and qualitative approaches.
For companies that are pre-IPO, there is a real focus on the management team. Yusko is looking for proven venture capitalists, entrepreneurs and operators. He prevents people from using their celebrity status to raise money.
Following the IPO, the Morgan Creek team will identify industries, sectors and business models that they believe will excel. Portfolio manager Dewey Tucker uses artificial intelligence models with predictive analytics, using previously successful deals to identify what might work again.
In terms of when they sell, there is no hard and fast rule.
Sometimes it is based on violations of technical signals. Other times, there’s a discipline to stick with a company despite the quantitative screens.
“We think we have a better chance of finding good candidates after the merger that we think we want to keep for many years to come,” said Yusko. “To go back in our history, it’s like buying Google or eBay in 1996, or buying Amazon in 2000, or buying Alibaba in 2010.”
Sectors to watch
Most SPACs are concentrated in industries that are very early in their life cycle and have their best days ahead, Yusko said. The four he is currently looking forward to for new activity are:
- Electrification and automation, especially autonomous vehicles.
- Aerospace and tourism, though he says he’s not as optimistic as others in the industry.
- E-commerce / eSports / Gaming, sectors harnessing the power of ubiquitous internet access.
- Digital assets
The digital asset market
There has been a transition from paper money and certificates of stock to electronic CUSIPs and fiat currency. The next step is the shift to digital currencies and digital assets, said Yusko, a managing partner at Morgan Creek Digital Assets who is known for bullish tweets on bitcoin and cryptocurrencies.
“It’s not about the price of bitcoin, it’s about the ownership of the network,” he said.
Inevitably there will be a number of blockchain and cryptocurrency SPACs, Yusko said, citing Figure Technologies, one of Morgan Creek Digital Asset’s venture capital investments, which has just filed for an SPAC.
Morgan Creek Capital set a price target for bitcoin to reach $ 100,000 by mid-year. Yusko’s optimistic view of the asset is based on the blockchain technology that powers it, which he believes is the next iteration of computing power. He said bitcoin is “the perfect storm of value” with all the properties of gold.
“Bitcoin is not going up so much that Bitcoin is getting better, it’s about the dollar getting worse,” said Yusko.
History has shown over time that any over-indebted government destroys the value of their fiat currency, Yusko said.
“I think it’s very likely we’ll hit $ 100,000 this year, and probably even higher, and depending on how high we go, we’ll probably have a bear market, on the other hand, in 2022, even 2023, same thing like we did in 2018, ”said Yusko.