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How Your Clients Can Prosper From M&A
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 to 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. --Joseph Lisanti

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