I have been tracking hedge funds that employ the merger arbitrage strategy through 13-F filings for as long as I can remember. While always interesting and insightful to peek into their portfolios, I find it particularly intriguing this time considering the fear present in many M&A stocks.
- I only count a stock if it is at least 1% of the fund's portfolio.
- I only include stocks that are still actively trading.
- I only choose funds where the vast majority of the positions are merger-related.
Of the 36 funds I track for the quarter ending September 30, 2016, LinkedIn (NYSE:LNKD) was overwhelmingly the top merger arbitrage stock. Microsoft (NASDAQ:MSFT) is in the process of buying LinkedIn in a deal expected to close later this year. EU approval is still needed.
Top 10 Merger Arb Stocks held by Funds
|1) LinkedIn||Held by 29 Funds|
|2) St. Jude||Held by 22 Funds|
|3) WhiteWave||Held by 18 Funds|
|4) Rite Aid (NYSE:RAD)||Held by 11 Funds|
|4) Monsanto (NYSE:MON)||Held by 11 Funds|
|6) Valspar (NYSE:VAL)||Held by 10 Funds|
|6) Virgin America (NASDAQ:VA)||Held by 10 Funds|
|8) Ingram Micro (NYSE:IM)||Held by 9 Funds|
|8) Syngenta (NYSE:SYT)||Held by 9 Funds|
|10) Cvent (NYSE:CVT)||Held by 8 Funds|
When a fund makes a stock its top pick, it is putting its money where its mouth is. Here are this quarter's top picks of the 36 funds.
Top Positions among the 36 Funds
|Top Position in 7 Funds|
|St. Jude||Top Position in 3 Funds|
Funds that specialize in merger arb will at times concentrate their portfolios. Recent 13-F filings reveal that a bunch of the funds I follow had oversized positions as of the end of Q3.
|30% of a Fund|
|26% of a Fund|
|St. Jude||21% of a Fund|
|Alere (NYSE:ALR)||19% of a Fund|
|19% of a Fund|
|Rite Aid||16% of a Fund|
|Carmike Cinemas (NASDAQ:CKEC)||15% of a Fund|
I use all the above information as a supplement to my own research and work, which consists of reading filings, watching the tape and using options to establish positions. There is no guarantee that the above deals will close. Many funds have had busted deal stocks such as Allergan (NYSE:AGN) in their portfolios.
Disclosure: I am/we are long LNKD, STJ, VAL, VA, WWAV, CVT, SYT, RAD, MON, IM, ALR, CKEC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.