Chapel Hill, North Carolina-based asset manager Morgan Creek Capital Management and New York-based fintech company EXOS Financial have launched the Morgan Creek – Exos Active SPAC Arbitrage ETF (ticker: CSH), an actively managed ETF with an investment strategy that invests in SPACs, and their underlying US Treasury collateral, to earn a potentially higher return per unit of risk than traditional cash alternatives.
CSH seeks to provide investors with short-duration investment exposure that still earns a meaningful positive return. The fund seeks to achieve this objective by holding a diversified portfolio of “pre-combination SPACs”, which are structurally collateralised by US T-bills or equivalents and embedded equity options. It actively manages the underlying portfolio in an attempt to optimise returns relative to the risk to its underlying collateral value.
“There has never been a more challenging time to be a saver”, says Mark Yusko, CEO and Chief Investment Officer at Morgan Creek Capital Management. “Record high inflation and ultra-low interest rates make it extremely difficult for investors to make the most of their cash. Banks are paying close to zero and other cash alternatives like credit, or longer duration bonds, offer only a small incremental return, but can leave investors with significant losses in the worst case scenarios”.
“We’re thrilled about bringing this new ETF to market in collaboration with Morgan Creek,” says Peter Early, Head of Business Development at EXOS Financial. “CSH is built for investors looking to earn a return on their liquid assets without compromising on safety. We do this by leveraging our expertise and extensive knowledge of SPACs while we have the ability to redeem our shares for the underlying collateral at some date in the future. This stage of a SPAC’s life cycle is unique because it offers the protection of the US government credit with the upside potential of equity, which is quite appealing.”
CSH will hold a diversified portfolio that is weighted based on a proprietary valuation analysis which is updated in real time. “We believe that active management is absolutely essential when navigating the world of SPACs. Our ETF manages risk through consistent and systematic rebalancing using a structured analytical framework that compares the expected return of each security in the universe relative to its risk to the underlying collateral value. This proprietary process is what keeps the portfolio well-positioned for small, but consistent, gains without over-exposing investors to any single security,” says PM Dewey Tucker.
Special Purpose Acquisition Companies, or SPACs, are hybrid investment vehicles where trust assets are collateralised by a pool of US Treasuries, and include equity options embedded in the structure that could allow for additional return above the risk-free rate. CSH is designed to capitalise on these key structural features of SPACs, and therefore is not necessarily dependent on the performance of the SPAC market as a whole, or on the performance of the individual companies that utilize SPACs to go public.
The expense ratio of CSH is 1.25 per cent.