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How to Build Resilient Portfolios with Uncorrelated Solutions

This article was originally published on ETFTrends.com.

Market volatility has spiked, causing many to adapt their traditional stock and bond portfolio to the quickly changing market conditions.

On the upcoming webcast, How to Build Resilient Portfolios with Uncorrelated Solutions, Salvatore Bruno, Chief Investment Officer and Managing Director, IndexIQ; Mark Lacuesta, Director, Index Strategies, IndexIQ; and John Davi, Founder and Chief Investment Officer, Astoria Portfolio Advisors, will outline potential resilient investments like a merger-arbitrage strategy to diversify a traditional portfolio mix and look for ways to hedge against further market volatility.

Specifically, the Index IQ Merger Arbitrage ETF (MNA) provides investors with a diversified approach to a group of takeover targets. The ETF employ a type of alternative, “directional hedge fund strategy” called merger arbitrage. The fund would capture the spread or difference between a stock’s trading price before a deal is announced and its eventual takeover price.

Merger arbitrage is a hedged, alternative investment strategy designed to take advantage of price discrepancies that exit for companies involved in a merger. The strategy would purchase companies at prices below the target price and lock in the difference, or spread. By targeting this spread, the generated returns are generally outside of normal fluctuations of the broader market.

A merger arbitrage investment strategy may help investors garner more consistent returns and possibly deliver a smoother ride, serving as an important capital preservation tool and providing drawdown protection in times of volatile market conditions.

Along with its drawdown protection potential, a merger arbitrage strategy can also improve the risk-to-return profile of a traditional investment portfolio since the drivers of return for this type of strategy are isolated from broad market moves.

Consequently, since the strategy is not expected to be highly correlated to other asset classes over time, investors may find a stable platform in stormy weathers if U.S. markets suddenly correct, which is more likely to happen in an extended bull market condition.

Financial advisors who are interested in learning more about alternative investment strategies can register for the Thursday, February 14 webcast here.