News & Analysis

SPAC mega-blitz as blank cheque stars enter Russell 3000

Andrew Saks, Friday, 25 June 2021

Opinion is very much divided when it comes to SPAC listings, which are controversial to say the least.

A SPAC listing is effectively a blank cheque entity with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.

An acronym standing for Special Purchase Acquisition Company, this new dimension of bypassing the usual due diligence that is traditionally required in order to meet the criteria for listing on prestigious stock exchanges in London and New York along with other major trading centers has drawn massive attention this year, and in some cases has created some very volatile and much-watched stocks.

Perhaps the next stage in this rapidly developing method for relatively new and in some cases 'meme' companies to become listed is about to begin, as a remarkable league consisting of dozens of companies that have entered the publicly listed arena via SPAC listings are about to be entered into the much-vaunted Russell 3000 index today.

The Russell 3000 Index is a market-capitalization-weighted equity index maintained by FTSE Russell that provides exposure to the entire US stock market. It tracks the performance of the 3,000 largest US-traded stocks which represent about 98% of all U.S incorporated equity securities.

Therefore, the entry of a large number of companies that gained their public listing via SPAC entities into such a prestigious index is remarkable indeed.

During the course of the remainder of 2021, new additions to the Russell 3000 index are likely to consist of a number of early-stage electric vehicle companies that listed their stock via SPACs, one of which has yet to deliver a single vehicle (!!) and whose shares first soared and then declined as wild investor enthusiasm gave way to concerns about regulatory scrutiny of the sector.

Isn't it astonishing that, given the due diligence and meeting of criteria that many companies that have been established for a very long time and have had to dot all their Is and cross all of their Ts in order to even consider being listed on major exchanges and then have to continue to strive to be in elite groups such as the FTSE100 are now being completely undermined by new entities that do not produce anything and have no historic data, yet are able to bypass all of the strict criteria that keeps the blue chip stocks so prestigious?

Other notable additions will include the sports betting business DraftKings, healthcare company Multiplan and 3D sensors manufacturer Velodyne Lidar and many more.

Analysts and skeptics are voicing very well founded doubts about this inclusion into the Russell 3000 index, on the basis that these firms have gone public without the proper vetting and that there is a high risk to shareholders of these companies which given the number of them intending to enter the Russell 3000 index, a risk to the entire index itself.

 According to the Financial Times, several high-profile short-sellers have targeted companies that have come to market via a Spac and will now be added to the Russell indices, however retail traders on Reddit forums have cheered the index reconstitution as a positive signal for popular stocks.

Can't imagine why that is...

Anyway, enough of the sarcasm, because this is a reality, whether unfortunate or the way of the future.

Either way, the influencers on social media now have a mainstream prestigious index to target rather than outlying meme stocks as the meme stocks have somehow been allowed to go mainstream.

What a bizarre world.

VIDEO BLOG: These five SPAC companies lost $60 million in a short time 

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