Merger Arbitrage ETF Proves Its Mettle Over a Decade | ETF Trends

The  IQ Merger Arbitrage ETF (MNA) debuted over a decade ago as one of the first ETFs in the “liquid alts” category, providing regular investors exposure to a concept previously reserved for institutional and other high-level pros.

MNA seeks to track, before fees and expenses, the performance of the IQ Merger Arbitrage Index. The Index seeks to achieve capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer. This differentiated approach is based on a passive strategy of owning certain announced takeover targets, with the goal of generating returns that are representative of global merger arbitrage activity. The Index also includes short exposure to global equities as a partial equity market hedge.

MNA uses a type of alternative, “directional hedge fund strategy” called merger arbitrage where the fund tries to capture the spread or difference between a stock’s trading price before a deal is announced and its eventual takeover price.

“MNA is designed to provide investors with a highly liquid, low-cost way to invest in announced mergers and acquisitions,” said Salvatore Bruno, chief investment officer at IndexIQ ETFs, in a recent note. “The goal is to benefit from the pricing inefficiencies that often occur when a deal target trades at a discount to the announced acquisition price, with the “spread” expected to tighten as the deal moves forward to the closing date. The strategy is designed to capture this price difference, and it’s incredibly exciting to now have 10 years of live track record to point to when we discuss this approach and what it can do for a portfolio.”

Keeping MNA Unique

One unique aspect of MNA is that it is the type of ETF that investors can hide out in with the ongoing trade war jitters, and the general environment of global economic uncertainty, gaining diversification and protection. MNA also fits well into most portfolios because of the low correlation it has to stocks and bonds.

Data suggest advisors have embraced MNA and that more growth for liquid alts ETFs is coming.

“So far, it has been the financial advisor community that has gravitated to MNA, looking to manage volatility and add uncorrelated returns to their clients’ portfolios,” said Bruno. “Advisors will always remain a key constituency for us and we are very excited to continue to tell the MNA story to more advisors as the fund moves into its second decade. Just as exciting is the institutional interest level around liquid alternative ETFs, like MNA, that appears poised to take off. A recent study that IndexIQ commissioned with Greenwich Associates showed that, among other major takeaways, institutional investments in liquid alternative ETFs will more than double over the next 12 months.”

For more on alternative investment strategies, please visit our Alternatives Channel.

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.