Fri, 14/12/2012 - 12:00
ProShares has launched the ProShares Merger ETF (MRGR), the first exchange-traded fund based on a true merger arbitrage strategy.
MRGR aims to produce the risk/return characteristics of a merger arbitrage strategy by tracking the performance of the S&P Merger Arbitrage Index (before fees and expenses).
The ETF has listed on BATS Exchange.
Merger arbitrage strategies, frequently used by institutions and high-net-worth investors, seek to capture the spread between a target company’s stock price after a proposed merger or acquisition is announced and the deal price that the acquiring company will pay for the target company.
“The goal of MRGR is to produce consistent, positive returns under virtually any market conditions," says Michael L Sapir, chairman and chief executive of ProShare Advisors, ProShares' investment adviser. "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."
Since the key drivers of merger arbitrage returns are different from the key drivers of equity market returns, the performance of a merger arbitrage strategy is not expected to be correlated to equity markets over time. This potentially makes merger arbitrage a valuable diversification tool.
A true merger arbitrage strategy aims to capture the spread between a target company’s stock price after a proposed merger or acquisition is announced and the price that the acquiring company will pay for the target company. It does this by obtaining long exposure to the stock of a target firm once the merger or acquisition is announced and seeking appreciation as it nears completion. Additionally, short exposure to the stock1 of the acquiring company is required to lock in the spread in deals where the acquirer’s stock is used for all or part of the purchase.
S&P Merger Arbitrage Index seeks to provide a merger arbitrage strategy that exploits commonly observed price changes associated with a global selection of publicly announced mergers, acquisitions and other corporate reorganisations.
The index provides exposure to up to 40 publicly announced mergers or acquisitions within developed market countries through a combination of long and, in certain cases, short security positions. When deals enter the index, the weight in long positions of target companies is initiated at three per cent and the initial weight in short positions of the acquiring company ranges between zero and three per cent, depending on terms of the deal.
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