First Trust Advisors (First Trust) has launched the First Trust Merger Arbitrage ETF, which seeks to provide investors with capital appreciation by establishing long and short positions in the equity securities of companies that are involved in a publicly-announced significant corporate event, such as a merger or acquisition.
“As the leading provider of actively-managed ETFs, we are happy to expand our lineup to include this merger arbitrage strategy. Since this ETF is expected to have low correlations to both stocks and bonds, we believe it will be an effective tool for investment professionals seeking to further diversify their clients’ portfolios,” says Ryan Issakainen, CFA, Senior Vice President, ETF Strategist at First Trust. Merger arbitrage is driven by a corporate event which may impact an involved company’s stock price. The strategy involves purchasing the stock of a company being acquired (“target company”), while shorting the stock of the acquiring company.
“We are very excited to work with First Trust and add to the firm’s successful range of actively-managed ETF strategies,” said Michael Grayson, Portfolio Manager at Vivaldi Asset Management, LLC (“Vivaldi”), the fund’s sub-advisor. Vivaldi aims to take advantage of the return opportunity presented by the potential profit, or “spread”, emerging from the public announcement of a merger or acquisition. “We believe merger arbitrage presents a compelling opportunity for investors as merger and acquisition activity continues to benefit from record levels of corporate cash reserves, favourable equity market conditions, low cost of debt, and corporate boardroom confidence to pursue growth through acquisitions,” Grayson said. The fund will generally provide exposure to a portfolio of deals across sectors and market capitalisations, but only securities of companies involved in a publicly announced significant corporate event, such as a merger or acquisition, are eligible for inclusion in the fund’s portfolio.
In addition to Michael Grayson, the fund’s portfolio management team from Vivaldi includes Michael Peck, CFA, President and Co-Chief Investment Officer; Scott Hergott, Co-Chief Investment Officer; Brian Murphy; Jeff O’Brien; and Daniel Lancz. The portfolio managers are primarily and jointly responsible for the day-to-day management of the fund.
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