Merger Arbitrage ETF Offers Play on Improving Economy

December 6th at 1:00am by Tom Lydon

As exchange traded fund (ETF) providers continue to innovate, ETF provider Index IQ recently launched its newest hedge fund replication fund to further broaden the ETF space. (Other hedge fund ETFs).

The IQ ARB Merger Arbitrage ETF (NYSEArca: MNA) carries an expense ratio of 0.75% and aims to mimic the merger-arbitrage strategy employed by some hedge funds. According to John Spence of The Wall Street Journal, this is a good time for the launch of such an ETF because global mergers and acquisitions are expected to pick up after last year’s global financial meltdown.

Index IQ is no stranger to constructing funds which mimic the alternative investment strategies utilized by hedge funds. (More on hedge fund replication).

This new ETF is unique in that it is following the merger-arbitrage strategy, in which a fund invests in mergers and acquisition deals by going long the in the shares of the target company  and periodically shorting the acquirer’s stock after a deal is announced.  At the end of the day, profits lie in the spread and this is what the ETF is trying to capitalize on, but the strategy is not without risk – primarily that the deal doesn’t close.

In addition to the benefits of low costs and transparency, MNA will also be equipped with the inherent benefits of ETFs (More on ETF benefits).

For more stories on new ETFs, visit our new ETF category.

Kevin Grewal contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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