M&A Pickup Pushes This ETF Higher

ETF Trends

Although there was no “Merger Monday” because U.S. markets were closed for a public holiday, this will go down as a big week on the mergers and acquisitions front.

On Tuesday, generic drugmaker Actavis (ACT) announced it will acquire rival Forest Laboratories (FRX) for $25 billion. After the close of U.S. markets Wednesday, Facebook (FB) announced a $19 billion acquisition of mobile messaging service WhatsApp.

Year-to-date, global technology sector mergers and acquisitions activity is up to $49.3 billion, a 41% year-over-year jump and the highest level since 2000, according to Dealogic.

An uptick in deal-making has lifted the IndexIQ Merger Arbitrage ETF (MNA) to a 3.4% year-to-date gain.

“MNA was designed to provide capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer, a strategy generally known as ‘merger arbitrage.’ This strategy generally seeks to take advantage of the price differential, where it exists, between the current trading price of a stock and the price of that stock at the time the deal is completed,” according a statement issued by IndexIQ.

Said another way, MNA is not a bet on rumored takeover targets, but the ETF can deliver upside for investors by adding companies to its portfolio at prices below an announced deal’s target price.

At the end of the fourth quarter, MNA’s largest sector weights were 35.7% to health care, 21.9% to financial services, 13.6% to consumer discretionary and 12.5% to technology, according to issuer data.

Eighteen companies were recently subtracted from MNA, but 11 additions were made. The new members of the ETF’s lineup are seen in the table below.

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Data Courtesy: IndexIQ

 

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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