2 Ways to Diversify With Merger-Arbitrage
The Medalist-rated Merger and Arbitrage funds both invest in publicly announced merger transactions, but each has its own special tilt.
2 Ways to Diversify With Merger-Arbitrage
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A. J. D'Asaro: The two funds we're comparing today are the Merger Fund (MERFX) and the Arbitrage Fund (ARBFX). Both these funds are very similar. They are engaged in a merger-arbitrage strategy, and many investors feel that these are interchangeable within their portfolio. While each fund invests in publicly announced merger transactions, each management team has their own special tilt in their portfolios.
For example, the Arbitrage Fund tends to favor mid-cap deals that have multiple bidders, while the Merger Fund tends to stick to large-cap deals and also diversifies into special situations, equity plays. As a result, the Merger Fund tends to exhibit a slightly higher correlation to equity at 0.44 over the last three years versus 0.31 for the Arbitrage Fund.
The Merger Fund's unique brand of merger-arbitrage has helped it to outperform the Arbitrage Fund over the past three years with performance of 9% total return, versus 2.1% for the Arbitrage Fund.
The Arbitrage Fund has also suffered in this time period with multiple deal breaks and poor selection of deals. Both of these funds are great options for investors looking to diversify away from equity risk. The Merger Fund earns a Silver Analyst Rating and the Arbitrage Fund earns a Bronze rating.