July 22, 2021

SPACs: Everything’s Coming Up Roses for Short Sellers

While SPACs have been a hot property in the capital markets, it turns out that they’ve been a sure thing for short sellers too, or at least that’s what this excerpt from a recent Institutional Investor article says:

Even as the broader stock market hit a record in the first half of 2021, with the S&P 500 index gaining 15%, short sellers found what has seemed to be a surefire place to make money: special-purpose acquisition companies. Since SPACs began to soar last year, activist short sellers have set their sights on 22 of them. The vast majority of those — 16 — were the subject of short reports this year, according to Breakout Point, a Germany-based research firm and data provider.

The short sellers have an impressive record: One week after they unveiled their SPAC targets, the stocks fell 14.2% on average, Breakout Point said. And they kept falling. After one month, they were down 24.7% on average. Moreover, “SPACs are better performing” than other short targets over the past year and a half, Breakout Point’s Ivan Cosovic told Institutional Investor. Since 2020, the stocks of SPAC shorts have declined 17.5% on average year to date, while the average decline of all new activist shorts was 13.5%.

One notable exception to this string of short-seller wins: SPAC pioneer Virgin Galactic. The article says that the stock’s up 44% since a short report was issued on it in early June.  I guess the lesson is that you shouldn’t bet against billionaires who want to be astronauts.

John Jenkins