Market Overview

Five ETFs Littered With Takeover Targets


Mergers and acquisitions activity has been on the upswing for over a year now and if you're looking for an ETF with which to play this theme, there is a specific fund devoted to M&A arbitrage, but the better bet is to identify sectors ripe for consolidation and use the relevant ETFs to isolate industry M&A.

Fortunately, there are plenty of familiar and highly liquid ETFs that boast lineups of not just one, but multiple takeover targets. In some instances, the ETFs we're about to highlight also include potential buyers and sellers under one roof.

Let's proceed with our list of ETFs littered with takeover targets.

1) Market Vectors Coal ETF (NYSE: KOL): KOL just rebalanced to reflect Alpha Natural Resources (NYSE: ANR) absorbing Massey Energy and more of that could be on the way for the dominant coal ETF. James River (Nasdaq: JRCC) and Patriot Coal (NYSE: PCX) have both been mentioned as the next most likely U.S. coal companies to be acquired and KOL is also chock full of potential buyers.

While names like Peabody Energy (NYSE: BTU), the largest U.S. coal producer, and Yanzhou Coal (NYSE: YZC), China's fourth-largest coal company, may not move on James River or Patriot, they could be active in coal M&A before the end of this year.

2) iShares Dow Jones U.S. Oil Equipment & Services Index Fund (NYSE: IEZ): Before 2011 is complete, there is a very strong chance global oil and gas sector asset sales and outright takeovers could be north of $75 billion to $80 billion. With oil prices remaining stubbornly high, expect some of the big oil services firms to do some shopping.

IEZ constituents Dresser-Rand (NYSE: DRC) and Dril-Quip (NYSE: DRQ) have been mentioned as takeover targets. To a lesser extent, so have McDermott International (NYSE: MDR) and some other smaller IEZ holdings. Expect National Oilwell Varco (NYES: NOV), one of the ETF's biggest holdings, to make a noteworthy deal before 2011 is out.

3) IQ Australia Small Cap ETF (NYSE: KROO): Most of KROO's nearly 100 holdings aren't listed here in the U.S., but the combination of this fund being focused on small-caps and its almost 29% allocation to materials stocks makes it an interesting an indirect M&A play as large non-Australian mining firms may look for deals on the cheap among their Aussie small-cap brethren.

4) Global X FTSE ASEAN 40 ETF (NYSE: ASEA): Another example of where a U.S. investor may not know the players, but as the ASEAN countries head toward their regional market in 2015, talk of regional synergies has been increasing, according to the Financial Times. With ASEA, you're not going to see $10 billion or $20 billion-type deals. Expect $300 million to $1 billion price tags and expect more as 2011 wears on.

5) Global X FTSE Colombia 20 ETF (NYSE: GXG): Even before Moody's recently boosted Colombia's credit rating to investment grade, analysts were speculating that the South American country's banking sector was ripe for consolidation. That's potentially good news for GXG, which devotes almost 39% of its weight to financials. Bancolombia (NYSE: CIB), GXG's second-largest holding at almost 10%, could be a buyer in Colombian financial services M&A.

Posted-In: Long Ideas M&A News Sector ETFs Specialty ETFs New ETFs Rumors Small Cap Analysis


Related Articles (ANR + ASEA)

View Comments and Join the Discussion!

Gold Technical Analysis for June 8, 2011

Rebound In Rare Earth Stocks?