If Credit Suisse Merger Arbitrage Liquid Index ETN (CSMA) is just not aggressive enough for your tastes, you’re in luck. Now you can buy 2x Monthly Leveraged Credit Suisse Merger Arbitrage Liquid Index ETN (CSMB), which began trading on Tuesday (3/8/11).
CSMA came out back in October. You may recall my post at the time in which I pointed out that the impressive backtested performance of CSMA’s benchmark index was even more meaningless than most such backtests, since the rules changed soon after the index began to be tracked in real time. Nevertheless, CSMA is still around and seems to have found an audience, albeit a small one. Now it has a younger brother.
Both CSMA and CSMB track the same index, so their differences are solely due to the leverage built into CSMB. Merger arbitrage is by its nature largely market neutral: the idea is to buy stocks that are in the process of being taken over and simultaneously short the acquirer, thereby capturing the spread. If you must have leverage, this strategy is one where it might make sense.
The ETN structure may also have a hidden benefit for CSMB (and CSMA too). Since merger arbitrage transactions are usually short-term, an ETF doing the same thing would probably generate more taxable distributions. The standard ETN counterparty risks remain, however. I will watch CSMB to see how it does, but for now I am still a fan of Merger Fund (MERFX).
Credit Suisse will assess buyers an annual investment fee of 0.55% and a leverage charge of 1 month LIBOR + 0.95%. More information is on the CSMB web page. I was unable to locate the final prospectus online, but you can view the preliminary version at the SEC web site.
Disclosure covering writer, editor, and publisher: Long MERFX. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.