Comparing Credit Suisse's Merger Arbitrage Strategy ETN to Contemporaries

Includes: CSMA, MNA
by: Roger Nusbaum

As I was reading Barron's I saw a banner ad for the Credit Suisse Merger Arb Liquid Index ETN (NYSEARCA:CSMA). I wrote about this somewhat favorably (other than the ETN structure) for when it first came out so I was curious to see how it had done versus a couple of contemporaries.

The chart compares CSMA in blue to the long tenured Merger Fund (MERFX) in yellow and the Index IQ Merger Arbitrage ETF (NYSEARCA:MNA) in red. I grabbed the chart from Morningstar because it accounts for the dividends in the chart but not so with MERFX in this chart. Smoothing out the dividend would have MERFX having a smoother ride to the same result. MNA has been a noticeable laggard.

I believe the lag in MNA is attributable to the fact that it does not short the acquirer it instead shorts broad indexes (either ETFs or futures contracts) in the belief it can capture the effect. The chart goes back to CSMA's inception which may not be enough time but MNA has also lagged MERFX going back to MNA's inception. The democratization of the strategy via retail products is a good thing but it makes sense to give funds that are not plain vanilla, like these, a little time to show what they might do. I expressed a little skepticism about MNA in the TSCM article linked above but should have stressed it a little more.

With the market up 100% from the March 2009 low and everyone feelin' groovy these funds are getting less attention than they probably should at this point in the cycle.