After a roughly six month break, it appears as though
ProShares is back launching new products once more with the debut
Merger ETF (
. This product marks the 13
launch for the company this year and just the fourth non
leveraged/inverse fund from the Maryland-based firm in the 2012
Still, even though the fund does not utilize leverage, it is
can still be classified as a 'long-short' product due to its
focus on a merger arbitrage strategy. This technique looks to go
long in firms that have announced that they are a target for a
takeover, while simultaneously going short in the acquiring
This approach looks to profit off of the spread between the
price that that target firm trades at after a deal has been
proposed, and the actual deal price that has been offered to the
target's management and shareholders. This is a relatively
riskless way of obtaining a small profit, while it can also
provide investors with some uncorrelated returns, a great feature
in today's market environment (read
Two ETFs for the Muddle Through Economy
The new MRGR ETF looks to accomplish this task by following
the S&P Merger Arbitrage Index which is a benchmark that
holds up to 40 publically announced mergers or acquisitions in
developed countries around the globe. Additionally, the deals
have to be at least half a billion dollars, and liquidity must
reach a level of an average daily trading value of two million
over the trailing three month period.
Investors should also note that the benchmark only includes
deals that have an implied deal price at least 2% above the price
of the stock immediately following the deal announcement. The
index also includes a cash component of three-month T-bills, so
it does look to earn a small level of interest from this as well
Time for a Merger Arbitrage ETF?
"The goal of MRGR is to produce consistent, positive returns
under virtually any market conditions,"
said Michael L. Sapir
, Chairman and CEO of ProShare Advisors LLC, ProShares'
investment advisor in a press release. "We are pleased to offer
access to a true merger arbitrage strategy delivered for the
first time with the cost efficiency, transparency and liquidity
of an ETF."
MRGR in Focus
The ETF looks to charge investors 75 basis points a year for
this exposure, putting at the high end of 'regular'
but well in line for a product that utilizes some short exposure
in its approach. According to the
, consumer, industrial, and energy firms comprise the bulk of the
assets in the ETF, leaving little for utilities, communication,
and technology firms.
Market cap exposure is tilted towards large caps, although
overall the product has a small and mid cap focus as securities
that are less than $5 billion in AUM account for nearly 40% of
the total. Meanwhile from a national look, American stocks
comprise the majority, but Canadian (19.7%), Asia-besides
Japan-(19.7%), and Europe-outside the UK-- (6.3%), account for
nearly all the rest of the assets.
While this new product looks to give more access to the world
of merger arbitrage, we should point out that there is already a
merger arbitrage fund on the market. This product, from IndexIQ,
trades under the symbol of
and has been tradable since November of 2009.
However, this ETF has failed to garner a significant amount of
assets in its three years on the market as the fund has just
under $15 million in AUM and volume below 10,000 shares a day.
The fund also has a significant cash component which has helped
to underperform broad markets in 2012, but also remain incredibly
stable and very capable of beating out the S&P 500 during
bear market periods (see
Three Excellent Dividend ETFs for Safety and
Still, the fact that the product hasn't seen much in inflows
over the past few years may suggest that there isn't much ETF
investor interest in the space. Since fees are pretty comparable
among MNA and the newly launched MRGR, the battle for any new AUM
in the space will come down to performance and holdings.
Should MRGR be able to outperform, it may be able to make a
name for itself in the space, but it remains to be seen just how
much in assets that might mean for merger arbitrage ETFs,
especially if the economy continues to improve and investors look
to long only products instead of 'hedged' ones.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
IQ-MERGER ARB (MNA): ETF Research Reports
(MRGR): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report