By Index IQ Iris.xyz

Remember the halcyon days of 2017?  For advisors and investors, it was a fabulous year. The stock market maintained a steady climb skyward, and it delivered a nice, smooth ride to the top. In fact, if you look at the numbers, 2017 was the least volatile market since the mid-1960s. Of course, as many predicted, it was also the calm before the storm. It seemed the minute the calendar turned to 2018, the market began to swing, and over the past few months those swings have been so severe and frequent that it’s now poised to be the most volatile market since the financial crisis.

As an advisor, you understand that volatility is a given. If it’s not here today, it’s only a matter of time before it returns. And yet the dramatic shift from uncommonly low volatility to one that has everyone bracing for the next shakeup has many advisors searching for new strategies that can help smooth the ride for investors—especially clients who are nearing or in retirement and are concerned about large market swings that impact their portfolios in a shorter time horizon. One strategy that’s worth considering is that trusty old standby: merger arbitrage.

Merger arbitrage offers several potential benefits for investors, including increased diversification and the potential ability to dampen the impact of rising market volatility. Like other alternative investments, returns on mergers and acquisitions (M&A) are typically uncorrelated with the equities market—a characteristic that can help reduce the level of volatility within a portfolio. Plus, because the strategy is dependent on the completion rate of corporate deals—not on stock valuations—the market risks associated with securities is not an influential factor with M&A.

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