An ETF to Capture the M&A Boom

November 18th at 6:00am by Tom Lydon

After a couple of years stuck in a doldrums, merger and acquisition activity is stirring from its slumber. An investor may capitalize on the increased M&A activity through the merger arbitrage exchange traded fund (ETF).

According to Thomson Reuters and Freeman Consulting Services, global mergers and acquisitions will increase by 36% next year to $3.04 trillion, gaining momentum from the financial and real estate sectors, reports Dawn Kawamoto for Daily Finance. The real estate sector could see an 88% surge in M&A activity year-over-year and the financial sector may experience a 75% increase. Health care is expected to see a 16% increase in M&A activity [An ETF for the M&A Pickup.]

Jeff Nassof, an associate consultant with Freeman, notes that people are “looking at M&A as part of their competitive strategy.” However, “overall 2010 levels are still pretty depressed. It’s still nothing like the heydays in 2007,” Nassof adds.

Ed Yardeni of Yardeni Research believes that the high liquidity in corporate balance sheets could result in more M&A activity – non-financial corporations held $1.8 trillion in liquid assets at the end of the second quarter – writes Josh Lipton for Minyanville. Many see Emerging Asia and North America as the most attractive locales for M&A activity next year.

If you notice this activity picking up according to forecasts, consider capturing it with IQ ARB Merger Arbitrage ETF (NYSEArca: MNA), which buys a takeover target’s shares after a transaction has been publicly announced. The fund won’t capture the big rallies that typically occur in the target’s stock after a potential transaction is unveiled.

It’s below its trend line now, but if M&A activity gets into gear, that could change.

  • IQ ARB Merger Arbitrage ETF (NYSEArca: MNA)

Max Chen 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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