Anyone who hasn’t been asleep recently knows that merger activity has been robust. According to S&P Capital IQ, U.S. M&A transactions announced this year (through June 4) totaled $773.6 billion, a 39.6% increase over the same period in 2014. Health care was the sector with the highest volume of transactions at $136.5 billion, but the telecom sector showed the biggest increase at 385.4%. So far this year, the information technology sector has seen the best combination of dollar volume and growth with $126.3 billion in deals, a 104% increase from 2014. That’s good for third place by each measure.

For advisors and their clients who want yo make tactical allocations to benefit from M&A activity, one option is to invest in sectors that focus on these hot areas of activity. Another way is to purchase funds or ETFs that specifically zero in on the stocks of companies engaged in mergers and acquisitions. These portfolios buy shares in targets of announced deals. If the deal is to be wholly or partially paid for in stock of the acquiring company, the funds may also short the shares of the buyer. In general, M&A funds have a low correlation with the movements of the overall market. But with thousands of mergers in the U.S. every year, no fund could own all of the target companies. As a result, performance can vary widely.

Here are some funds and ETFs in the M&A area, along with performance data. Many of these funds have been launched in the past couple of years so three-year and five-year data is not available for all of them.

Click here to view as a slideshow. 

8. ProShares Merger ETF


  • Performance through May 31, 2015: 0.42%
  • 3Y Annualized Return: NA
  • Expenses: 0.75%*

ProShares Merger ETF (MRGR), launched in 2012, is based on the S&P Merger Arbitrage Index, which includes a maximum of 40 deals from developed markets around the world. If the deal involves stock, the acquiring company’s shares are shorted. Recently about 73% of the long weighting of the index and almost 77% of its short weighting were in U.S. companies.

Inception date: Dec. 11, 2012

7. Touchstone Merger Arbitrage Y

  • Performance through May 31, 2015: 1.19%
  • 3Y Annualized Return: 2.37%
  • Expenses: 1.43%*

Touchstone Merger Arbitrage Y (TMGYX) was launched in 2011 and closed to new investors in 2013. But earlier this year, the restrictions were lifted for RIAs, bank trust departments and a few other intermediaries. There’s a $2,500 minimum initial investment in the fund, which invests in deals of all capitalization sizes, but specializes in smaller-cap mergers.
Inception date: Aug. 9, 2011    

6. Touchstone Arbitrage Y 

  • Performance through May 31, 2015: 1.27%
  • 3Y Annualized Return: NA
  • Expenses: 1.43%*

Touchstone Arbitrage Y (TMAYX) is a sister fund to TMGYX and covers some of the same territory. Even so, TMAYX can go farther afield by investing in arbitrage situations that don’t necessarily involve mergers. Like its sibling, TMAYX has the same management team from subadvisor Longfellow Investment Management and a $2,500 minimum initial investment.
Inception date: Sept. 30, 2013

5. The Merger Fund 

  • Performance through May 31, 2015: 1.29%
  • 3Y Annualized Return: 3.2%
  • Expenses:1.23%*

 The Merger Fund (MERFX) was the first mutual fund to try to capture the difference between the price of a stock at the time of a merger announcement and the ultimate value when the sale is completed. Launched in 1989 by employee-owned Westchester Capital Management, the fund recently had 91 long positions and 10 short positions. Minimum investment is $2,000.
Inception date: Jan. 31, 1989

4. The Arbitrage Fund 

  • Performance through May 31, 2015: 3.35%
  • 3Y Annualized Return: 1.61%
  • Expenses: 2.17%

The Arbitrage Fund (ARBFX) went public in 2000 and since inception has produced a cumulative total return close to that of the S&P 500 Index with a much lower standard deviation. The fund, advised by Water Island Capital, has a $2,000 minimum investment and no sales charge. Fund literature notes a net expense ratio of 1.44% and a gross expense ratio of 2.17%. The latter includes dividend and interest payments on short positions.
Inception date: Sept. 17, 2000

3. SilverPepper Merger Arbitrage 

  • Performance through May 31, 2015: 5.09%
  • 3Y Annualized Return: NA
  • Expenses: 2.24%*

SilverPepper Merger Arbitrage (SPABX) invests in deals as small as $100 million in market cap, so it leans to the smaller-capitalization part of the market.  Launched in 2013, the fund has a minimum initial investment of $5,000. The fund’s website is heavy on graphics and light on data.
Inception date: Oct. 13, 2013

2. IQ Merger Arbitrage ETF 

  • Performance through May 31, 2015: 6.6%
  • 3Y Annualized Return: 5.6%
  • Expenses: 0.76%

IQ Merger Arbitrage ETF (MNA) tracks a proprietary index based on announced mergers in the U.S., Canada, Europe and parts of Asia. The index methodology calculates the probability of the merger’s completion based on the price of the security a day prior to the deal announcement, the price a day before the index’s monthly rebalance and the offer price of the security on the deal announcement date. It hedges by shorting appropriate equity ETFs.
Inception date:  Nov. 17, 2009

1. Kellner Merger A 

  • Performance through May 31, 2015: 7.18%
  • 3Y Annualized Return: NA
  • Expenses: 1.75%*

Kellner Merger A (GAKAX) tends to focus on small- and mid-cap merger targets in a portfolio that contains 25 to 50 positions. Although the fund was launched in 2012, Kellner Capital has managed alternative investments for more than 30 years. The “A” shares are available load waived through several platforms and will be converted to no load in the coming months.
Inception date:  June 29, 2012

*waiver in effect.

Register or login for access to this item and much more

All Bank Investment Consultant content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access