AlphaRank SPAC Monitor — July 2021

July 22, 2021 — In a world starved for yield, SPAC arbitrage stands out as one of the most attractive low-risk strategies to generate yield.

Since peaking at 1.75% in March, the 10-Year U.S. Treasury yield has fallen to just 1.25%. To most investors, an interest rate of 1.25%, with little upside potential, is insufficient given the duration risk in an inflationary environment.

In contrast, since bottoming at a stunning negative -4.0% in February, SPAC arbitrage yields have increased to 1.7%.

The current average 1.7% yield priced into SPACs matches the level from April 2020, when world markets were still in a Covid-induced bear market and valuations for nearly all asset classes were materially lower.

Given that SPACs represent a discounted T-Bill plus an equity call option, fixed income investors should be keenly aware of the yields offered by SPACs in comparison to other fixed income alternatives.

The average SPAC trades at a -1.2% discount to the redeemable T-Bills it holds in trust, and at a -2.1% discount on a median basis. This current discount to trust value compares to an average 6.5% premium over the past year, back when investors ascribed upside optionality to the equity portion of a SPAC.

Many investors wonder, “Given the precipitous decline of yields in traditional fixed income, why are SPAC arbitrage yields so attractive?”

We believe SPAC arbitrage yields have increased to attractive levels, given their low-risk nature, for several reasons:

There are several reasons why SPAC arbitrage yields remain unusually high, leaving investors an opportunity to potentially bolster their fixed income portfolios at cyclical lows. Regardless, enterprising investors should consider the asset class as a cash replacement given how much of an increase in yield one can earn by swapping cash for discounted SPACs to redeem for trust value.

The Accelerate AlphaRank SPAC Monitor details various metrics on the current opportunity set while offering details on every individual SPAC currently outstanding. The Accelerate AlphaRank SPAC Effective Yield tracks the average arbitrage yield offered in the market. The Accelerate AlphaRank SPAC Index tracks the price return of the SPAC universe.

* AlphaRank is exclusively produced by Accelerate Financial Technologies Inc. (“Accelerate”). The Accelerate Arbitrage Fund may hold a number of securities discussed in this research. Visit AccelerateShares.com for more information.

Disclaimer: This research does not constitute investment, legal or tax advice. Data provided in this research should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information in this research is based on current market conditions and may fluctuate and change in the future. No representation or warranty, expressed or implied, is made on behalf of Accelerate as to the accuracy or completeness of the information contained herein. Accelerate does not accept any liability for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on all or any part of this research and any liability is expressly disclaimed. Accelerate may have positions in securities mentioned. Past performance is not indicative of future results.

Founder and CEO of Accelerate Financial Technologies. Learn more at AccelerateShares.com