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As retail investors pump less money into blank-cheque companies, returns on those stocks are badly underperforming versus the S&P 500.

Reuters found that over 100 special-purpose acquisition companies, or SPACs, that announced mergers this year on average have gained under 2% from the price they traded at when they first listed on the stock exchange.

Most of those SPACs began trading on the stock market last year, and the group’s median performance has trailed the S&P 500 by 15 percentage points, according to the Reuters analysis of data from Refinitiv and research firm SPAC Research.

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Their underperformance comes amid a fall from grace for SPACs as increased regulatory scrutiny threatens to make many proposed mergers less attractive.

In early 2021, individual investors hungry for exposure to industries such as electric vehicles and space travel snapped up a wave of SPACs, which acquire startups and take them public with less scrutiny than in a traditional initial public offer.

Since then, retail investors have lost much of their initial interest, and listings of new SPACs have fallen off.

Retail investors’ net daily purchases of SPACs have fallen to about $181 million from $500 million in late January, according to research firm VandaTrack.

Backers say SPACs sidestep exorbitant fees charged by investment banks in IPOs, while critics warn that investors pay a heavy cost through share dilution during the process of launching a SPAC and acquiring a target company.

A recent study by members of Stanford University and New York University law schools found that SPACs that spent more than others on payments to sponsors and other fees tended to see their share prices fall further following mergers with their target companies.

“It’s not just bad luck that causes SPACs to underperform,” said Michael Ohlrogge, assistant professor of law at NYU School of Law and one of the study’s authors. “There are all these costs that drain value from the SPAC merger, and those costs get passed on to investors.”

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SPACs typically sell shares for $10, with a guarantee that investors can redeem those shares, often with interest, if they do not like the merger deal the SPAC eventually strikes. In their initial public offers marketed to institutional investors, they also provide warrants to buy additional shares at a potential discount.

Smaller investors tend to buy SPAC shares directly on the stock market, often with the intention of holding them long-term, although they do have the right to redeem their shares when the SPAC completes a merger.

Of SPACs that have announced deals in 2021, the share prices of many rose ahead of the announcement, only to return to around their $10 listing price, suggesting investors are unimpressed with the planned mergers and may redeem their shares when the merger completes.

For example, shares of Altimeter Growth Corp have receded 16% since April 13, when it announced it would combine with ride-hailing and food delivery firm Grab Holdings in a deal worth almost $40 billion. Its stock remains up 6% since it first traded on Dec. 1, compared with a 13% gain in the S&P 500.

The median performance of a SPAC from the day it announces what company it will merge with through now is a decline of 6% according to the Reuters analysis.

Overall, about 90% of SPACs that announced deals this year are lagging the S&P 500, based on when they began trading on the stock market, typically at around $10, according to Reuters’ analysis.

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The analysis included 114 SPACs that have announced mergers in 2021. It does not include over 400 SPACs that listed their shares this year and last year and are still looking for companies to merge with. In most cases, their shares are hovering around the $10 IPO price they can be redeemed for if a merger is eventually announced.

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