The first quarter was one of the strongest in several years for mergers and acquisitions. If the early part of the second quarter is an accurate gauge, that trends shows no signs of abating.
Last week, Royal Dutch Shell (NYSE: RDS-A), Europe’s largest oil company, said it is acquiring rival BG Group for $70.2 billion in the oil industry’s largest acquisition in a decade. On the same day, generic drugmaker Mylan (NYSE: MYL) offered to acquire Israeli rival Perrigo (NYSE: PRGO) for $205 per share, or $28.86 billion.
In what may be a surprise to some investors, increased mergers and acquisitions activity could prove to be a boon for the TrimTabs Float Shrink ETF (NYSEArca: TTFS).
TTFS portfolio manager Minyi Chen believes that as low rates are fueling M&A activity, companies with a shrinking equity float, strong free cash flow growth, and low leverage are more likely to become a target because of their healthy balance sheets.
The actively managed TTFS does not focus solely on share buybacks. Rather, the $221.6 million ETF emphasizes net share count reduction by focusing on companies that achieve a low shares outstanding tally without using massive amounts of debt to fund buybacks.
Sub-advised by TrimTabs Asset Management, TTFS is an equal-weight fund that focuses on companies that have reduced their shares outstanding over the prior 120 days. The ETF’s holdings are selected based on three primary criteria: Shareholder friendliness via float shrinkage, profitability measured by free cash flow and balance sheet sturdiness measured by leverage ratio. [Another Milestone for the Float Shrink ETF]