investing

IQ Merger Arbitrage Is All About the Deals

This merger-focused ETF can zig when the market zags.

Market-neutral funds are designed to lag the broad market when stocks are soaring but hang in there when things go south. In those respects, IQ Merger Arbitrage ETF (symbol MNA) has done its job. The exchange-traded fund’s 2.3% annualized return over the past decade lags the 11.2% turned in by Standard & Poor’s 500-stock index. But amid the 19.9% slide in the broad stock market from its peak on February 19 through March 13, the fund lost only 6.7%.

The ETF’s returns come from merger arbitrage—buying shares in soon-to-be-acquired firms after deals are announced. Should a deal close, the fund earns the difference between the price of shares when it buys them and the announced acquisition price. Returns aren’t tied to the number of deals on the market, though a big economic slowdown could shrink the pool of deals that meet the fund’s criteria, says Sal Bruno, investment chief at the ETF’s parent firm, IndexIQ. In that case, the fund would boost its cash stake.

Kiplinger's Personal Finance

Getty Images

The fund tracks an index that excludes deals in which less than 50% of a company is being purchased and those taking place outside of developed markets, which face a higher risk of regulatory interference, says Bruno. Shares are sold immediately when deals reach completion. Otherwise, the fund will hold a given name for up to a year before selling. After that, Bruno says, deals are more likely to fall apart.

Kiplinger's Personal Finance

Getty Images

Over the past decade, the fund—with an expense ratio of 0.77%—has been two-thirds less volatile than the broad stock market.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
9 Great Growth ETFs for 2022 and Beyond
ETFs

9 Great Growth ETFs for 2022 and Beyond

These growth ETFs offer exposure to higher-risk, higher-reward stocks while lessening the risk of a single stock torpedoing your returns.
January 18, 2022
The 10 Best Closed-End Funds (CEFs) for 2022
CEFs

The 10 Best Closed-End Funds (CEFs) for 2022

These high-yielding CEFs won't just significantly boost your portfolio income. They'll also allow you to buy their underlying stocks and bonds at a di…
January 12, 2022

Recommended

Semiconductor Stocks: A Smart Bet for the Long Haul
Becoming an Investor

Semiconductor Stocks: A Smart Bet for the Long Haul

Stocks in this growing industry will stay in demand long after supply-chain snarls are unraveled.
January 26, 2022
The Right Dividend Stock Fund for You
Becoming an Investor

The Right Dividend Stock Fund for You

Dividend stock strategies come in many different flavors. Here's what to look for.
January 26, 2022
Primecap Odyssey Growth Has a Rough Year
mutual funds

Primecap Odyssey Growth Has a Rough Year

The fund trailed the S&P by a wide margin, but over the long haul Primecap's managers have not disappointed shareholders.
January 26, 2022
Could the Stock Market Crash for Real? Here’s How to Prepare
investing

Could the Stock Market Crash for Real? Here’s How to Prepare

After a long march to record heights, the stock market tripped into correction territory in January. How should you react? Thoughtfully.
January 25, 2022