“It creates a good environment for M&A now,” Audra Lalley, managing director at Miracle Mile Advisors, said in the article. “While small companies are doing well, large companies are interested in acquiring them.”
The M&A ETFs provide investors with a diversified approach to a group of takeover targets. The ETFs employ a type of alternative, “directional hedge fund strategy” clled merger arbitrage. Specifically, the funds capture the spread or difference between a stock’s trading price before a deal is announced and its eventual takeover price.
“The spread between these two prices typically exists due to the uncertainty that the announced merger or acquisition will close and, if it closes, that such merger or acquisition will be at the initially proposed economic terms,” according to Credit Suisse.
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Max Chen contributed to this article.