Roy Behren, a portfolio manager with Westchester Capital Funds, argues that the M&A strategy is less volatile since returns are fairly predictable, with about 90% of all mergers closing. Patti also points out that the average return on an individual stock is about 3.5% over 120 days, or the typical amount of time for a deal to close.

Nevertheless, the strategy is not without its risks. For instance, a few bad deals could drag down a merger arbitrage portfolio. Behren also pointed out to takeover risks like regulatory hurdles, antitrust issues, shareholder voting risk and futures earnings concerns. [Merger Arbitrage ETF Endures End of Comcast/Time Warner Deal]

Index IQ Merger Arbitrage ETF

For more information on M&A activity, visit our mergers and acquisitions category.

Max Chen contributed to this article.