M&A ETFs Sizzling On Recent Deal Activities

How to Tap?

Investors could easily take advantage of this surge in deals by employing the merger arbitrage strategy in their portfolio. This strategy looks to tap the price differential (or spread) between the stock price of the target company after the public announcement of its proposed acquisition and the price offered by the acquirer to pay for the stock of the target company.
 
This is especially true given that investors should go long on the target or the acquired company and short on the acquiring company. When the deal is completed, shares of the target company will increase to the full deal price (in some cases slightly below the deal price), giving investors a nice profit.

Below we have highlighted a few merger ETFs to ride out the surge from the increasing M&A deals. Any of these could make compelling options for investors seeking to implement this low correlation strategy to their portfolio:
 

IQ Merger Arbitrage ETF (MNA - Free Report)
 
This fund offers capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer while at the same time providing short exposure to global equities as a partial equity market hedge. This is done by tracking the IQ Merger Arbitrage Index. The fund has 57 holdings in its basket with the largest allocation to Vivint Solar (VSLR) at 7.6% share while other firms hold no more than 6% share. The product has amassed $692.8 million in its asset base and trades in average volume of around 95,000 shares a day. It charges 77 bps in annual fees.
 
ProShares Merger ETF (MRGR - Free Report)
 
This product provides exposure to a global merger arbitrage strategy, which seeks to capture the spread between the price at which the stock of a company (a target) trades after a proposed acquisition is announced and the value (cash plus stock) that the acquiring company has proposed to pay for the stock of the target (a spread). This can be easily done by the S&P Merger Arbitrage Index. The fund holds a well-diversified portfolio of 30 stocks and charges 75 bps in annual fees. The ETF has been able to manage assets worth $7.6 million while it sees light volume of just 1,000 shares a day.

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