Capitalizing on the Transformative M&A Market

Merger and acquisition activity continues to be robust and is expected to remain elevated as the year progresses. However, not all M&A investment strategies are alike.

On the upcoming webcast Tuesday, Aug. 7, Capitalizing on the Transformative M&A Market, Dan Petersen, Director of Product Management at IndexIQ, Kelly Ye, Director of Research at IndexIQ, and Mark Lacuesta, Director of Index Strategies at IndexIQ, will discuss how investors can potentially reduce portfolio risk while taking advantage of the transformative M&A market.

Specifically, the Index IQ Merger Arbitrage ETF (NYSEArca: MNA) provides investors with a diversified approach to a group of takeover targets. The ETF employ a type of alternative, “directional hedge fund strategy” called merger arbitrage. The fund would capture the spread or difference between a stock’s trading price before a deal is announced and its eventual takeover price.

“The increase in M&A activity has opened the door to numerous investment opportunities. Having a well-defined strategy, coupled with the use of hedging strategies, may help investors capitalize on the potential upside, while seeking to reduce some of the risks typically associated with merger arbitrage,” Petersen said in a recent note.

Merger arbitrage is a hedged, alternative investment strategy designed to take advantage of price discrepancies that exit for companies involved in a merger. The strategy would purchase companies at prices below the target price and lock in the difference, or spread. By targeting this spread, the generated returns are generally outside of normal fluctuations of the broader market.

A M&A Investment Strategy

A merger arbitrage investment strategy may help investors garner more consistent returns and possibly deliver a smoother ride, serving as an important capital preservation tool and providing drawdown protection in times of volatile market conditions.