Mergers and acquisitions present an opportunity for some investors to capitalize on expanding businesses. With exchange traded funds, investors now have more options to capture the M&A activity.
ProShares recently launched the ProShares Merger ETF (BATS: MRGR). The ETF tries to reflect the performance of the S&P Merger Arbitrage Index, which capitalizes on the spread between stock prices of target company after a M&A deal is proposed compared to the offering company, according to a filing.
“The goal of MRGR is to produce consistent, positive returns under virtually any market conditions,” Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, said in a press release.
The spread occurs because of the uncertainty surrounding the deal, such as risks with the transaction or the time it will take to finish. For those deals that fall through, the price of the target company will typically fall back to pre-announcement levels and result in significant losses.
MRGR holds up to 40 publicly announced deals within developed markets. It will take long positions in the shares of the target companies while shorting shares of the acquiring company when the deal involves an exchange of the acquiring firm’s stock. As of September 30, the ETF had 113.6% in long positions and -19.6% in shorts, with a 6.1% cash holding.
Regional allocations include U.S. 51.8%, Canada 19.7%, Asia ex-Japan 17.5%, Europe ex-U.K. 6.3%, Australia 3.8% and Japan 0.9%.