ETF Spotlight: Credit Suisse Merger Arbitrage Liquid Index ETN

| About: Credit Suisse (CSMA)
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ETF Spotlight on Credit Suisse Merger Arbitrage Liquid Index ETN (NYSEArca: CSMA), part of an ongoing series.

Assets: $106.5 million.

Objective: The exchange traded note’s tracking index tries to reflect the spread between the price a stock of a target company trades after a proposed acquisition of the target company is announced with the price of the acquiring company has proposed to pay for the target company.

Holdings: Top holdings include: Progress Energy (NYSE: PGN) 4.5%, Family Dollar Store (NYSE: FDO) 3.0%, Lubrizol Corp. (NYSE: LZ) 3.3%, NSTAR (NYSE: NST) 3.9% and Southern Union (NYSE: SUG) 3.0%.

What You Should Know:

  • CSMA has an expense ratio of 0.55%.
  • The fund has 33 holdings, and may hold between 30 to 50 at any time.
  • The ETF tries to deliver a popular hedge fund strategy. If the proposed deal closes, it pockets the spread.
  • “Merger arbitrage is a relatively simple strategy that aims to capture the spread that often exists between the proposed offering price and the market price of a merger target’s public stock,” according to Morningstar analysts. “Merger arbitrage profits are the reward for acting as an insurer to the target’s stockholders, who may wish to lock in their gains.”
  • “It’s what’s called an alternative beta, and may offer diversification benefits to a traditional portfolio of stocks and bonds,” the analysts add.
  • There is also a leveraged version: Credit Suisse 2x Merger Arbitrage Liquid Index ETN (NYSEArca: CSMB).
  • IQ Merger Arbitrage ETF (NYSEArca: MNA) is a competitor.

The Latest News:

  • Dealogic calculates that Global M&A volume totaled $1.56 trillion during the first half of the year, a 25% jump year-over-year for the same period, reports Harriet Agnew for Financial News.
  • However, profits from merger arbitrage during the first half were low due to tight spreads, with annualized deal spreads at low-single digit numbers.
  • Additionally, share prices on acquiring companies, which usually drop after the company announces a buyout, are now rising.
  • During the second quarter, M&A activity declined as a result of the macroeconomic environment.
Credit Suisse Merger Arbitrage Liquid Idx ETN

Max Chen contributed to this article.