Last week’s market sell-off that saw the Dow Jones Industrial Average lose over 1,300 points in two consecutive trading sessions caused investors to flee towards floating-rate bond ETFs and Treasury Inflation-Protected Securities (TIPS) as they dumped U.S. equities in the face of rising yields. However, other options to consider include exchange-traded funds that can dull the effects of rising rates, such as the IQ Merger Arbitrage ETF (NYSEArca: MNA) and the IQ 50 Percent Hedged FTSE Intl ETF (NYSEArca: HFXI).
Mergers and acquisitions have been abound in various sectors as the historic bull market seen as of late in U.S. equities has been helped by a rise in such activity, particularly from the technology sector that has been fueling much of the growth this year. Notable activity came from the likes of tech giants, such as Hewlett-Packard Enterprise, Cisco Systems, Accenture, Cisco Systems, AT&T, and Sprint.
However, mergers and acquisitions have been seen across a variety of sectors, which has helped MNA. MNA seeks investment results that correspond generally to the price and yield performance of its underlying index, the IQ Merger Arbitrage Index, which seeks to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions and other buyout-related transactions.
“We have seen strength in M&A across the board, with some rotation among sectors, as the year has gone along. In the first half alone, a record $2.5 trillion in deals were announced worldwide, including more than $1 trillion in the US alone,” Salvatore Bruno, Chief Investment Officer of IndexIQ, told ETF Trends. “Healthcare was active, with 255 deals in the second quarter, the 15th consecutive quarter with more than 200 announced deals, according to PricewaterhouseCoopers (PwC). Globally, the energy & power sector has seen a lot of transactions. The Media industry has seen some major activity, with $323 billon in deals announced through the first half of the year. Over the same period, technology transactions were up more than 50% from 2017, to nearly $208 billion. Almost every sector saw growth, with the one standout exception being Consumer Products and Services.”
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An acquisition may require creative financing on the part of the acquiring company, and this may include using loans as a capital resource. However, the Federal Reserve just installed its third rate hike last month, raising the federal funds rate another 25 basis points to its current level of 2.25.
However, mergers and acquisitions have turned more to stock-based financing to nullify the increased costs of borrowing money in a rising rate landscape.