Top Merger Stocks Held By Fund Managers, Mid-Q4 2018

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Includes: AET, COL, CVS, DIS, DNB, DVMT, ESRX, FCE.A, FOX, FOXA, MITL, SHPG, SODA
by: Special Situations and Arbs
Summary

Form 13F filings show fund managers' top arbitrage stocks.

Top M&A stocks of the 41 funds I follow.

Fox and Aetna the consensus top two holdings.

The latest Form 13F's have been filed and as I do every quarter I compile the top holdings of 41 funds that are investors in M&A. I then present the top 10 here on Seeking Alpha.

My rules:

  • 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 majority of positions are merger-related.

Twenty-First Century Fox, Inc (FOXA) (FOX) is the stock that is in the most portfolios. It is in 70% of them. FOX is in the process of being bought by Disney (DIS) in a cash and stock deal.

Aetna (AET) is second to Fox, with 27 funds holding it. Aetna is being acquired by CVS Health (CVS) also in a cash and stock deal. As many as five state approvals, including New York are all that is needed before the companies can close. CVS said last week on their earnings call that they expect to the deal to be completed by Thanksgiving.

Top 10 Merger Arb Stocks held by Funds

1) Twenty-First Century Fox (FOX-A) Held by 28 Funds
2) Aetna (AET) Held by 27 Funds
3) Rockwell Collins (COL) Held by 23 Funds
4) Express Scripts (ESRX) Held by 22 Funds
5) Forest City Realty Trust (FCE.A) Held by 17 Funds
6) Shire PLC (SHPG) Held by 16 Funds
7) Dun & Bradstreet Corp (DNB) Held by 13 Funds
8) Dell Technologies Inc. (DVMT) Held by 11 Funds
9) SodaStream International (SODA) Held by 10 Funds
10) Mitel Networks Corporation (MITL) Held by 10 Funds

When a fund makes an arbitrage stock its top holding, it signals a strong belief that the deal will ultimately close. 11 funds have Aetna as its top pick as of September 30.

Top Positions among the 41 Funds

Aetna Top Position in 11 Funds
Rockwell Collins Top Position in 2 Funds
Twenty-First Century Fox Top Position in 2 Funds

Oversized Holdings

Some arb funds oversize their top positions. As of the end of Q3, there were four positions of 21% or more in a single stock.

SodaStream International 80% of a Fund
Aetna 52% of a Fund
Fox 23% of a Fund
Dun & Bradstreet Corp 21% of a Fund

Conclusion

In times of heavy market volatility M&A stocks can be a place to hide. Peaking into funds that specialize in arbitrage can give investors ideas to research.

Author's note: If you enjoy merger arbitrage, tender offers, exchange offers, spin-offs, liquidations and odd lots, please consider following me by clicking on the "Follow" button on top of this page.

Disclaimer: The above article is intended to provide my opinion to interested readers. To the best of my knowledge, the information presented above is factual but its accuracy cannot be guaranteed. The article should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect my judgment as of the date of publication and are subject to change. Readers are strongly encouraged to complete their own due diligence on any stock or option mentioned in this article before investing. I have no knowledge of individual investor circumstances, goals, portfolio concentration or diversification. I am not a licensed investment adviser. The information contained in this article is provided for general informational purposes and is not a substitute for obtaining professional advice from a qualified person, firm or corporation. Merger arbitrage is a risky strategy because there is significant downside in the event of most deal rejections.

Disclosure: I am/we are long AET, SHPG, DVMT, DNB, ESRX.

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.