By Roger Nachman
Everyone talks about mania, they think of Hulk Hogan right? Well maybe it's just me, but M&A mania is picking up lately, and here's a little known way to play it.
Merger mania is back in full force lately, and investors need to know how to profit from this.
You could buy shares of the company Du jour being acquired, in hopes that the deal goes through and profit off the spread.
This is known as merger arbitrage, a popular strategy among hedge funds and scalpers.
For example, Burger King (BKC) announced yesterday that it is being acquired for $24 per share. Since the deal isn't expected to close immediately, shares will tend to trade a few cents below the offer price. Sometimes traders will push shares above the offer price, speculating another offer will come in. Profiting off the spread of let's say 20 or 30 cents is known as merger arbitrage.
It's a good strategy, but it can be expensive buying of all these companies, so here is an ETF that does all the work for you.
The IQ ARB Merger Arbitrage ETF (NYSEARCA:MNA) participates in merger arbitrage by acquiring shares of the company and profiting off the spread until the deals close.
It's a very thinly traded ETF, with assets just under $30 million and daily volume at 12,600 shares.
It was designed to dampen volatility and it's done just that. It's not going to be a portfolio mover and make you drastically richer, but a $10,000 investment in MNA at its inception would be worth around $10,600 today.
The ETF was launched in November 2009, and not too many investments made since then could say they've given you a positive return.
In addition to buying shares of the acquired company, MNA uses futures contracts on the S&P 500 and MSCI EAFE Index to short entire markets.
It has an expense of 0.75% and typically has between 25-45 holdings in the portfolio.
It's not going to make your portfolio go gangbusters, but it does allow you to capture some profits off merger mania.
Now take your vitamins and say your prayers brothers, especially when it comes to the merger game.
Disclosure: No positions