(Bloomberg) -- After all the hype around blank-check companies earlier this year, things have gotten ugly, with those shares selling off amid a stock-market rout.
The Defiance Next Gen SPAC Derived ETF (SPAK), which primarily tracks companies that raise money for buying businesses, has plunged more than 14% since its October debut. Online sports-betting company DraftKings Inc. has tumbled about 40% this month, while Virgin Galactic Holdings Inc. -- a developer of space vehicles -- is down about 9%.
Special purpose acquisition companies, or SPACs, have become a hot area of the market as a way for purchasers to avoid the costly and time-consuming initial public offering process. Instead, they sell shares of a company that has no operations, promising to use the money within two years to buy a private one. But after a giant rally in 2020, those stocks were engulfed in the market rout, and extended losses on Friday as volatility remained elevated heading into next week's presidential vote.
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“Considering the serious uncertainty about another stop-gap plan from the U.S. government and next week's elections, it does not surprise me that there is hesitation about adding more money to the so-called blank-check investment space,” said James Pillow, managing director at Moors & Cabot Inc.
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