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Barry Ritholtz

Mediocre SPAC Returns Shouldn't Be a Surprise

The latest Wall Street craze puts Sturgeon's Law to the test.

Most Wall Street investment products are mediocre.

Most Wall Street investment products are mediocre.

Photographer: Spencer Platt/Getty Images

There has been increasing focus on the poor performance of a newly popular Wall Street product called special-purpose acquisition vehicles, or SPACs. My Bloomberg Opinion colleague Nir Kaissar dived into the debate recently, citing research showing the returns of most SPACs are subpar. But here’s a dirty little secret: Most investment products are at best mediocre. They tend to be expensive and underperform versus a simple passive index. And yet, this truism has somehow become controversial.

The vast majority of “products” that can be stuck in a portfolio are mostly not worth the cost relative to the performance they provide. Main Street investors have come to this realization, as evidenced by money flows since the financial crisis, with cash moving away from expensive, complicated, under-performing products toward inexpensive, simple, market-performing ones.