Friday, May 27 2022

Commodities continued to rise last month as investors look for ways to hedge against inflation and rising rates, however, investors could be missing out on a particularly well-positioned strategy: arbitrage. mergers.

Merger Arbitrage is an alternative investment strategy offering investors the opportunity to create a more efficient and diversified portfolio, targeting both steady gains and minimizing losses in both bull and bear markets, according to Virtus.

Unlike traditional investments, the performance of event investments, such as the Merger Fund (MERFX)largely depends on a number of identifiable variables, as opposed to market conditions.

Commodities, on the other hand, rose another 9.63% in March after rising 8.8% in February, driven by geopolitical strife and inflation, the two main reasons for the general rise in commodity prices. raw, according to Jim Wiederhold, Associate Director, Commodities and Real Assets, S&P Dow Jones Indices.

MERFX invests in companies involved in pending mergers, takeovers and other corporate reorganizations, with the aim of profiting from the timely completion of such transactions. Its returns have historically had a low correlation with the stock market and near zero correlation with the bond and commodity markets, as each investment tends to trade on idiosyncratic trading momentum.

Whether the market goes up or down while waiting for the trade, the value of the consideration to be received is a fixed dollar amount that the arbitrageur is likely to realize as potential return, or spread, upon successful conclusion of the trade. the transaction. , according to Virtus.

In general, merger arbitrage managers seek to make their investment strategies as market-neutral as possible, leaving most of the portfolio’s exposure to the occurrence of corporate events. specific. As a result, merger arbitrage strategies were able to generate positive returns in most market environments, offering significantly less downside in bear markets, according to Virtus.

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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.


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