(Bloomberg) — Skeptics who bet against businesses that went public by merging with blank-check companies are sitting on more than $1.2 billion in paper profits now that investors have soured on high-flying and overhyped stocks.
That’s how much short sellers potentially have made just during the opening weeks of 2022 on companies listed in the De-SPAC Index, according to S3 Partners, the analytics firm that tracks short-sale data. The 25-member index tracks previously private firms after they combine with a special-purpose acquisition company.
Some of the biggest returns have come from stocks like electric-vehicle charging company ChargePoint Holdings Inc. and fintech venture SoFi Technologies Inc., down about 34% and 19% respectively this year. Each generated more than $165 million in paper gains for shorts, data provided by S3 to Bloomberg show.
Stocks that resulted from mergers with special-purpose acquisition companies are getting pummeled as investors dump riskier holdings in startups, high-tech ventures and cryptocurrencies. That’s on top of the drubbing that so-called De-SPACs took in 2021 — down more than 50% from their February peak — amid a glut of new offerings, growing skepticism among investors and a crackdown by regulators.
The hot-then-not trend led to a strong setup for short sellers, who borrow shares and then sell as enthusiasm for the newly public companies fizzled out after their mergers. Other blank-check alums that have seen bearish investors reap gains include Ginkgo Bioworks Inc. and metaverse-play Matterport Inc., down more than 40% and 50% each this year.
The global market rout, which has hammered companies that aren’t yet generating profits, has added more pressure on the De-SPAC index, with 2022 losses near 30%.
Individual investors who expect more pain for De-SPACs can bet against them courtesy of Tuttle Capital Management, the firm that created the De-SPAC Index. Tuttle’s Short De-SPAC ETF (ticker SOGU) has soared more than 35% in 2022, data compiled by Bloomberg show. That’s good enough to place it among this year’s 15 top performing ETFs.
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