An ETF for the M&A Pickup
August 31st 2010 at 3:00pm by Tom Lydon
It’s merger madness in the markets right now. And wouldn’t you know it? There’s an exchange traded fund (ETF) to play it.
Among the deals, would-be deals and not-deals-yet include:
- CNBC reports that in merger news, the Genzyme (NASDAQ: GENZ) board rejected a $18.5 billion offer that translated into $69 per share of Sanofi-Aventis (NYSE: SNY). [Why Biotech Is Feeling the Winds of Change.]
- Intel (NASDAQ: INTC) recently bought the wireless unit of German chipmaker Infineon (NYSE: IFX), for $1.4 billion.
- BHP Billiton (NYSE: BHP) is still after Potash (NYSE: POT) for about $12 billion and Reuters reports that word is the sale is focused on nitrogen and phosphates. [6 Ways to Access The Potash Bids With ETFs.]
Add to all this activity the fact that S&P 500 corporations are sitting on about $1.8 trillion in cash right now. They’ll be looking to deploy it in one way or another, and M&As may be a way to do it.
There is an ETF that tracks an index designed to profit from the spread between an acquisition target’s current stock value and the higher takeover price. The only major risk is if prices are lowered during negotiation time.
IQ ARB Merger Arbitrage ETF (NYSEArca: MNA) is designed to “diversify portfolios and dampen overall volatility” because the strategy tends to not move in lockstep with major stock indexes, reports John Spence for MarketWatch. Assets are just under $30 million, but the activity in this space could drive investors to the fund.
MNA doesn’t speculate on deals – it only buys the target’s shares after a transaction has been publicly announced. Therefore, it won’t capture the big rallies that typically occur in the target’s stock after a potential transaction is unveiled. It’s up 0.7% in the last three months and down 2% in the last six.
Tisha Guerrero 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.