Merger Arbitrage ETF Tops $1 Billion in Assets

The IQ Merger Arbitrage ETF MNA — one of the first exchange traded funds to make the merger arbitrage strategy long used by professional traders accessible to a broader swath of investors — recently topped $1 billion in assets under management.

What Happened

Merger arbitrage is an event-driven strategy in which traders, also known as arbitrageurs in this case, speculate on when a deal will close or if it will be finalized at all. The strategy involves buying and selling shares of two companies involved in a proposed merger.

A typical strategy would be to short shares of the target company if the arbitrageur sees reasons why the deal could be delayed or ultimately fail.

MNA, which debuted in November 2009, makes the merger arbitrage strategy accessible to everyday investors. The fund tracks the IQ Merger Arbitrage Index, meaning MNA is a passive, index-based strategy.

Why It's Important

In the ETF space, MNA is considered an alternative fund. Alternative assets are usually embraced by investors looking for assets that historically are not highly correlated to stocks and bonds. MNA recently won the 2019 Mutual Fund and ETF Industry Award for the “Best Alternative ETF of the Year.”

MNA “provides diversification benefits and low correlation to other asset classes, which may improve a portfolio's risk-return profile,” according to the issuer.

At the end of the first quarter, MNA held 35 stocks, about two-thirds of which hailed from the technology and health care sectors. Top 10 holdings in the ETF include Red Hat Inc. RHT, First Data Corp. FDC, Celgene Corp. CELG and SunTrust Banks, Inc. STI.

MNA can also provide a buffer against volatility. At the end of the first quarter, the ETF's underlying index had a standard deviation of just 3.27 percent, well below the comparable metrics on broad equity benchmarks.

What's Next

MNA and the IQ Hedge Multi-Strategy Tracker ETF QAI are IQ's two ETFs with at least $1 billion in assets under management. Those are the only two liquid alternatives ETFs to have hit the $1-billion milestone.

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