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ETFs to Cash in on Merger Monday

The term `Merger Monday' turned literal earlier this week, with a furry of merger deals hitting Wall Street. Going by dictionary , the term refers to 'a Monday on which several mergers and acquisitions are announced. Merger Mondays happen when the details of the mergers are finalized over the weekend and announced on Monday' (read: 3 ETFs to Profit from the M&A Boom ).

The week starting November 2, 2015, revealed a few billion-dollar deals. In any case, mergers and acquisitions have been raging in recent years on cheap borrowing costs, solid cash reserves with corpoartes, tax inversion business practices and intent to boost inorganic growth. As per Dealogic, the U.S. became the 'top acquiring nation' worldwide with 45% share so far in 2015.

Coming to Merger Monday, investors saw Visa ( V ) acquiring its European equivalent Visa Europe in a $23.4 billion deal. Per Yahoo Finance , the deal will give Visa an edge over its peers like MasterCard ( MA ). Visa lost over 3%, but not on the merger deal. The company actually missed on earnings that it reported on the same day.

There was a sizzling deal in the consumer staples market where Conagra Foods ( CAG ) offloaded its private brands to TreeHouse Foods ( THS ) in a $2.7 billion all-cash deal so that the former can concentrate on its name brands. CAG shares were up 0.9% on Monday while THS shed 5.6%.

Yet another development was in the healthcare sector where Dyax ( DYAX ) was taken over by Shire ( SHPG ) for $5.9 billion. Through this deal, Shire made inroads into a 'treatment for rare genetic disorder that attacks the immune system'. The real gainer was Dyax which skyrocketed 28.4% on November 2, however Shire retreated over 1%.

How to Tap?

Investors could easily take advantage of this surge in deals by employing the merger arbitrage strategy to their portfolio. This strategy looks to tap the price differential (or spread) between the stock price of the target company after the public announcement of its proposed acquisition and the price offered by the acquirer to pay for the shares of the target company.

This is especially true given that investors should go long on the target or acquired company and short on the acquiring company. When the deal is completed, shares of the target company will increase to the full deal price (in some cases slightly below the deal price), giving investors a nice profit (see: all Hedge Fund ETFs here ).

Apart from the merger arbitrage strategy, investors can also take a look at the concerned stocks of Dyax, Conagra and Visa and the ETFs investing considerably in these companies.

Below, we have highlighted five ETFs to ride out this Merger Monday. Any of these could make compelling options for investors seeking to cash in on the surge in merger deals:

IQ Merger Arbitrage ETF ( MNA )

This fund offers capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer while at the same time provides short exposure to global equities as a partial equity market hedge. This is done by tracking the IQ Merger Arbitrage Index (read: Invest Like Top Hedge Funds with This Outperforming ETF ).

The product has amassed $136 million in its asset base. Costs come in at 75 basis points a year. The ETF has lost about 1.2% year to date.

Credit Suisse Merger Arbitrage Index ETN ( CSMA )

This is an ETN option tracking the Credit Suisse Merger Arbitrage Liquid Index. The benchmark has several dozen companies, focusing on liquid firms that see positive acquisition premiums.

The note targets deals within the United States, Canada and Western Europe. The product has $5.5 million in AUM while expense ratio came in at 0.55%. CSMA is up 0.5% in the year-to-date frame (as of November 2, 2015) (read: 3 Negative Beta ETFs for This Rough Market ).

ALPS Medical Breakthroughs ETF (SBIO)

This fund targets companies with one or more drugs in phase II or phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. In total, it holds 81 stocks with Dyax taking the top spot with 5.02% weight (read: Dyax HAE Drug Result Fuels Three Biotech ETFs ).

It is a small cap centric fund, having amassed $151 million since its debut late December. The Zacks Rank #2 product charges 50 bps in fees per year from investors. On November 2, SBIO was up 6.5% while the fund has advanced 27.4% so far this year.

PureFunds ISE Mobile Payments ETF (IPAY)

This newly launched ETF tracks the ISE Mobile Payments Index to provide exposure to the performance of companies engaged in the mobile/electronic payments business. This approach results in the fund holding a small basket of 31 stocks. Visa is the top holding of the fund with 6.37% weight.

As far as geographical concentration is concerned, the fund is heavy on the U.S. with about 85% focus followed by France (4.32%) and Germany (3.83%). The fund charges 75 bps in fees and has amassed about $5 million in assets, having debuted in mid July. The fund is up about 2% so far this year (as of November 2, 2015).

Consumer Staples AlphaDEX Fund (FXG)

This $2.82-billion consumer staples ETF looks to track the StrataQuant Consumer Staples Index and charges 67 bps in fees. FXG is made up of 40 consumer staples securities. Conagra Foods has 2.39% weight in the fund. FXG is up 12.8% so far this year (as of November 2, 2015). The fund has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Q4 Outlook for Consumer Staples ETFs ).

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IQ-MERGER ARB (MNA): ETF Research Reports

CS-MRGR ARB IDX (CSMA): ETF Research Reports

ALPS-MED BRKTH (SBIO): ETF Research Reports

PF ISE MOBLPAY (IPAY): ETF Research Reports

FT-CONSUMR STP (FXG): ETF Research Reports

VISA INC-A (V): Free Stock Analysis Report

DYAX CORP (DYAX): Free Stock Analysis Report

CONAGRA FOODS (CAG): Free Stock Analysis Report

MASTERCARD INC (MA): Free Stock Analysis Report

SHIRE PLC-ADR (SHPG): Free Stock Analysis Report

TREEHOUSE FOODS (THS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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