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Zacks Podcast Highlights: Let's Make a Deal: What's a Merger Arbitrage Strategy?
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For Immediate Release
Chicago, IL – The merger and acquisition market is heating up! Find out why this is the case and how a ‘merger arbitrage’ strategy can be used to play this trend. For some insights on this topic, I spoke with Sal Bruno, CIO of IndexIQ, who gives us some insights on this strategy, and why 2017 could be an important year for mergers and acquisitions. Check it out!
The merger and acquisition market is becoming increasingly intense!
Companies flush with cash and short on growth opportunities are looking to mergers and acquisitions to boost their prospects in the near-term. We have seen plenty of deals in this environment, and it looks like this trend might continue for a while longer too.
Obviously, finding potential acquisition targets can lead to big gains, but some investors are looking to the so-called ‘merger arbitrage’ strategy in order to tap into the hot M&A world.
What is a merger arbitrage strategy? Well, to get some insights on this topic, I spoke with Sal Bruno, CIO at IndexIQ to get his take on this approach for the latest edition of the Dutram Report.
Merger Arbitrage
Generally speaking, when a company announces a takeover, the target firm will see its share price rise, but not up to the full deal value. For example, let’s say a potential target is trading at around $15/share. If a company offers $20/share for the target, the target might see its shares only rise to $19.25/share. This gap between the offer price and the current price is due to the risk of the deal falling through—for any number of reasons—and it is where those employing the merger arbitrage strategy come in to the picture.
Those employing this technique buy up shares of the target company—after the deal has been announced—and look to profit on that gap between the current price and the offer price once the deal closes. It is generally seen as a lower risk and uncorrelated strategy, and Sal Bruno walks us through the mechanics of this approach in the podcast.
Merger Arbitrage ETF?
Additionally, Sal also discusses his company’s fund, the IQ Merger Arbitrage ETF (MNA - Free Report) and how this product employs a merger arbitrage strategy in fund form. The technique produces a return that has a surprisingly low volatility level, and has a beta that is extremely low as well (the current beta against the S&P 500 is below 0.3).
Sal also clues us in on the construction of the ETF and how components are decided for the fund, as well as what happens if a deal falls through. We also discuss the fund’s components, and right now this includes Becton Dickinson’s target CR Bard , Time Warner which is being purchased by AT&T, and NXP Semiconductors (NXPI - Free Report) which is being acquired by Qualcomm, all of which have more than 7% of the total each. The exposure is pretty diversified all things considered, as five segments each account for at least 10% of the total asset base, and we also touch on the sector biases in this approach as well.
We also discuss some of the mechanics of this technique—such as how companies are removed and why there is a level of short exposure in the ETF—and what the outlook is for mergers and acquisitions under the Trump administration. Make sure to check out the podcast for insights from Sal, and a complete discussion of this strategy!
Bottom Line
But what do you think about the merger arbitrage strategy? Is this something you’ve considered for your portfolio? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros .
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Podcast Highlights: Let's Make a Deal: What's a Merger Arbitrage Strategy?
For Immediate Release
Chicago, IL – The merger and acquisition market is heating up! Find out why this is the case and how a ‘merger arbitrage’ strategy can be used to play this trend. For some insights on this topic, I spoke with Sal Bruno, CIO of IndexIQ, who gives us some insights on this strategy, and why 2017 could be an important year for mergers and acquisitions. Check it out!
The merger and acquisition market is becoming increasingly intense!
Companies flush with cash and short on growth opportunities are looking to mergers and acquisitions to boost their prospects in the near-term. We have seen plenty of deals in this environment, and it looks like this trend might continue for a while longer too.
Obviously, finding potential acquisition targets can lead to big gains, but some investors are looking to the so-called ‘merger arbitrage’ strategy in order to tap into the hot M&A world.
What is a merger arbitrage strategy? Well, to get some insights on this topic, I spoke with Sal Bruno, CIO at IndexIQ to get his take on this approach for the latest edition of the Dutram Report.
Merger Arbitrage
Generally speaking, when a company announces a takeover, the target firm will see its share price rise, but not up to the full deal value. For example, let’s say a potential target is trading at around $15/share. If a company offers $20/share for the target, the target might see its shares only rise to $19.25/share. This gap between the offer price and the current price is due to the risk of the deal falling through—for any number of reasons—and it is where those employing the merger arbitrage strategy come in to the picture.
Those employing this technique buy up shares of the target company—after the deal has been announced—and look to profit on that gap between the current price and the offer price once the deal closes. It is generally seen as a lower risk and uncorrelated strategy, and Sal Bruno walks us through the mechanics of this approach in the podcast.
Merger Arbitrage ETF?
Additionally, Sal also discusses his company’s fund, the IQ Merger Arbitrage ETF (MNA - Free Report) and how this product employs a merger arbitrage strategy in fund form. The technique produces a return that has a surprisingly low volatility level, and has a beta that is extremely low as well (the current beta against the S&P 500 is below 0.3).
Sal also clues us in on the construction of the ETF and how components are decided for the fund, as well as what happens if a deal falls through. We also discuss the fund’s components, and right now this includes Becton Dickinson’s target CR Bard , Time Warner which is being purchased by AT&T, and NXP Semiconductors (NXPI - Free Report) which is being acquired by Qualcomm, all of which have more than 7% of the total each. The exposure is pretty diversified all things considered, as five segments each account for at least 10% of the total asset base, and we also touch on the sector biases in this approach as well.
We also discuss some of the mechanics of this technique—such as how companies are removed and why there is a level of short exposure in the ETF—and what the outlook is for mergers and acquisitions under the Trump administration. Make sure to check out the podcast for insights from Sal, and a complete discussion of this strategy!
Bottom Line
But what do you think about the merger arbitrage strategy? Is this something you’ve considered for your portfolio? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.
But for more news and discussion regarding the world of investing, make sure to be on the lookout for the next edition of the Dutram Report (each and every Thursday!) and check out the many other great Zacks podcasts as well!
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros .
Follow Eric on Twitter: https://twitter.com/ericdutram
Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Zacks Investment Research
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https://www.zacks.com/performance
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.