In a recently held webinar, hedge fund founder Boaz Weinstein made some eyebrow-raising investment advice. The head of Saba Capital Management spoke of several under-appreciated and now attractive assets, namely SPACs – Special Purpose Acquisition Companies and Credit Default Swaps (CDS), particularly as hedges to the U.S. Federal Reserve’s hawkish policy shifts.
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The multi-millionaire investor is no stranger to going against the grain, although he was correct in that SPACs have fallen considerably from their former popularity. Between 2020 and 2021, SPAC-ing into the public market became a rather fashionable method of skirting typical IPO regulations, and multiple tickers subsequently went soaring as investors piled in. However, things have changed over the last few months.
Many names that were once pushed to sky high valuations have since come down back to earth, especially as under-supervised firms failed to deliver on their promises to investors or meet expectations of growth. As a result, Weinstein sees many SPACs at a discount and at attractive entry points. He also argued that investors largely misunderstand the inner workings of these financial vehicles, and that they’ll come back to prominence eventually.
Stating that they can be seen as fixed-income securities, the Hedge fund manager likened them more to bonds than to the speculative equities which investors have categorized them as. He reminded investors that the funds that SPACs raise are invested in Treasuries, and as such accrue interest. This interest can be withdrawn along with an early investor’s money once the SPAC acquires a company.
It is important to note that Saba Capital itself is active in SPAC investments.
Additionally, Weinstein also asserted that CDS’ are strong hedges to possible broad market corrections. Their cheap premiums provide a low-risk investment against the higher risk current market environment. This is due in part to the low liquidity of corporate debt bonds, making the price action far more volatile if things go south.
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