Merger Arbitrage

USA

First Trust lists merger arbitrage ETF with hedge fund level fee

First Trust is listing a hedge fund-style merger arbitrage ETF, with a hedge-fund style fee. The First Trust Merger Arbitrage ETF (MARB) will be actively managed and exploit the differences between companies’ share prices when mergers and acquisitions are announced. These differences – called “spreads” – in share prices typically exists due to risks about whether the deal will fall through or whether the terms will come unstuck.

MARB will exploit them by buying the stock of the company being acquired while short selling the stock of the acquirer. The fund will be run day to day by Vivaldi Asset Management. When there are no M&A deals going on, the fund will hold cash.

The fee is a hedge fund-style 1.94%, making MARB one of the most expensive US ETFs.

Analysis – works but increasingly competitive

Merger arbitrage is a known way to get a free meal out of the stock market. Even Vanguard seems to think so. And putting it in an ETF means everyone can access it – not just hedge fund investors. Nonetheless, the fee is really high. And merger arbitrage is a low margin type of investing.    

Let’s see how this goes.

Another sector rotator

In what’s quickly shaping up to be the product trend of 2020, Armor, an ETF newcomer, is listing a sector rotating ETF of ETFs with help from white labeller Exchange Traded Concepts.

Like the others of its kind, the Armor US Equity Index ETF (ARMR) will duck in and out of other sector ETFs based on a reading of the market. Unlike others of its kind, however, the fund will do so passively. Sectors will be chosen based performance the previous month compared to a proprietary benchmark. Sectors that have performed well will be included in the index and equally weighted.

If no sector has performed well enough over the prior month, then ARMR invest in treasuries.