Deal Making Lifts M&A ETF
From Comcast's (NASDAQ: CMCSA) $16.7 billion deal to acquire the portion of NBCUniversal it did not already own to US Airways (NYSE: LCC) purchasing rival AMR (OTC: AAMRQ) to Berkshire Hathaway (NYSE: BRK-A) and a Brazilian partner moving on H.J. Heinz (NYSE: HNZ), this week has been a busy one on the mergers and acquisitions front.
The brisk deal-making pace has been good news for one ETF perceived to be a play on increased mergers and acquisitions activity. That being the IndexIQ Merger Arbitrage ETF (NYSE: MNA), which gained more than 1.3 percent this week amid the flurry of M&A headlines.
What is important to note with MNA, and it is overlooked by those not familiar with the ETF, is that the fund is not comprised rumored takeover candidates. Rather, MNA is true to its name and is home to "global companies for which there has been a public announcement of a takeover by an acquirer," according to IndexIQ.
Rather, MNA is an arbitrage play, or a way to profit from the way professional investors buy and sell the stocks of the acquiring and target companies. In other words, Heinz is currently not one of MNA's constituents, but it could be in the future.
At the sector level, MNA is diverse. Consumer staples lead the way with a 21 percent weight, but financial services, energy, health care and consumer discretionary also receive double-digit allocations. As of the end of 2012, MNA was heavily focused on U.S. stocks, but almost 39 percent of its weight was spread among Canada, the Netherlands and Australia.
Speaking of global exposure, another overlooked feature of MNA is that the ETF features short positions on some international stocks a partial market hedge. MNA's equity market hedge was -14 percent of the total portfolio at the end of 2012.
MNA does have some rivals in the arbitrage in ETF niche, notably the Credit Suisse Merger Arbitrage Liquid Index ETN (NYSE: CSMA) and the ProShares Merger ETF (BATS: MRGR), but the IndexIQ has been the top performer of the group over the past year.
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