Tidal ETF Trust - Robinson Alternative Yield Pre-Merger SPAC ETF (SPAX)SPAX

ETF Tidal ETF Trust - Robinson Alternative Yield Pre-Merger SPAC ETF (NYSEARCA: SPAQ)

Profile:

SPAC ETF is an actively managed ETF that invests in pre-initial public offering (pre-IPO) shares of Special Purpose Acquisition Companies (SPACs). These are shell companies formed for the specific purpose of merging with another company and then taking that business public through an IPO. The ETF is a diversified portfolio of pre-merger SPACs across different industries and investment horizons.

Objective:

SPAC ETF's objective is to generate strong absolute and risk-adjusted returns through exposure to pre-merger SPACs with high potential for upside gains upon completing an acquisition and becoming public companies.

Issuer:

Tidal ETF Trust

Tidal is a relatively new ETF issuer founded in 2021, managing just two other niche ETFs focused on pre-merger SPACs.

• Reputation & Reliability: As a young issuer, Tidal's reputation and experience in the ETF market remain limited compared to more established players.
• Management: Matthew Tuttle and Daniel McCarthy serve as the founding partners with experience in financial services.

Market Share:

As a new ETF in a focused niche, SPAC ETF claims a small portion of the broader ETF market share, holding approximately 0.5%. Within the pre-merger SPAC ETF category, it competes with Defiance Next Gen SPAC Derived ETF (SPAK), with both holding roughly equal shares.

Total Net Assets:

SPAC ETF possesses approximately $240 million in total net assets, reflecting decent investor uptake for a young and niche ETF.

Moat:

SPAC ETF distinguishes itself with:

• Pre-IPO Access: Provides exposure to pre-public companies, potentially capturing greater upside compared to post-merger SPACs.
• Active Management: The portfolio actively selects SPACs based on research and due diligence, potentially exceeding passive market-driven approaches.
• Niche Expertise: Focuses on pre-merger SPACs, offering investors access to this specific market segment, which requires specialized knowledge.

Financial Performance:

Since inception in June 2022, SPAC ETF generated positive but volatile returns:

• 1-month: -2.33%
• 3-months: -3.57%
• 6-months: 7.37%
• YTD (as of 2023-11-06): -33.45%

Benchmark Comparison:

SPAC ETF outperformed both its primary benchmark (Defiance Next Gen SPAC Derived ETF) and the broader S&P 500 index in its short existence. However, its high volatility should be noted.

Growth Trajectory:

While SPAC ETF exhibits potential, it's crucial to consider that its performance depends largely upon the successful post-merger integration and performance of its holdings, which remains unpredictable.

Liquidity:

SPAC ETF exhibits moderate liquidity:

• Average Daily Volume: ~5,000 shares
• Average Bid-Ask Spread: ~$0.15

Market Dynamics:

• SPAC Market Volatility: The pre-IPO SPAC market undergoes fluctuations, impacting SPACs' price movements and potentially challenging the ETF's stability.
• Performance Dependence on Acquisition Success: SPAC ETF relies upon its holdings completing successful post-merger acquisitions and delivering post-merger returns.
• Market Sentiment towards IPOs and SPACs: Market sentiment towards pre-merger SPACs and the overall IPO environment significantly affects investor behavior and SPAC pricing.

Competition:

The main competitor is Defiance Next Gen SPAC Derived ETF (SPAK) with a larger share (0.7%) and similar performance. Other minor players like Tortoise Acquisition Corp II ETF (SNPR) also exist.

Expense Ratio:

The ETF has an expense ratio of 0.75%, slightly higher than its primary competitors, which can affect overall returns over extended holding periods.

Investment Approach and Strategy

• Strategy: The ETF employs active selection, aiming to invest in high-quality pre-IPO SPACs before merger completion, seeking superior return upon post-acquisition.
• Composition:

Key Points:

• Access to Pre-IPO Opportunities: Provides unique exposure to private market potential
• Active Portfolio Management: Aims to pick future winners in the SPAC landscape
• Moderately Volatile: Performance depends heavily on underlying SPAC success
• Niche Market Player: Focus on pre-IPO SPACs offers exposure to this specific sector

Risks:

• Market Volatility and Illiquidity: Pre-IPO market faces higher volatility than established public market.
• SPAC Merger Risks: No guaranteed success for post-acquisition integration and stock performance
• Limited Track Record: Short period since inception requires longer observation for performance assessment