Three sponsors launched new ETFs on Tuesday 11/17/09, making for 97 (93 ETFs and 4 ETNs) new exchange-traded product listings so far this year. The three new funds are the IQ ARB Merger Arbitrage ETF (MNA), PIMCO Enhanced Short Maturity Strategy Fund (MINT), and PowerShares Build America Bonds Portfolio (BAB).
IQ ARB Merger Arbitrage ETF (MNA) seeks to achieve capital appreciation by investing in global companies for which there has been a public announcement of a takeover by an acquirer. This approach is based on a passive strategy of owning certain announced takeover targets with the goal of generating returns that are representative of global merger arbitrage activity. The Index also includes short exposure to global equities as a partial equity market hedge. Additional information can be found in the press release, summary page, and fact sheet.
MNA will only rebalance and add new positions on a monthly basis. Additionally, it will not short the acquiring company as is done in many merger arbitrage strategies. Instead, it will partially hedge market exposure by holding at least two inverse and/or ultra inverse ETFs. It will also hold a combination of short-term and medium-term bond ETFs to represent cash exposure. MNA will have a 0.75% expense ratio.
Given these limitations, I think traditional mutual funds are probably still a better way to implement a merger arbitrage strategy. Consider Merger Fund (MERFX) or Arbitrage Fund (ARBFX).
PIMCO Enhanced Short Maturity Strategy Fund (MINT) is an actively managed ETF intended as a higher-yielding alternative to money market funds. MINT will invest primarily in short duration investment-grade debt securities. The average portfolio duration will vary based on PIMCO’s economic forecasts and active investment process decisions, and will normally not exceed one year. The fund will have a 0.35% cap on expenses. Additional information can be found in the fund snapshot.
PowerShares Build America Bonds Portfolio (BAB) ETF will seek investment results that correspond generally to the price and yield (before fees and expenses) of the BofA Merrill Lynch Build America Bond Index. The fund will invest in taxable municipal securities eligible to participate in the Build America Bond program created under the American Recovery and Reinvestment Act of 2009. Additional information can be found on Invesco’s BAB background page and the fund overview. BAB will initially have an average duration of 10.8 years and an average coupon of 6.37%. The fund’s expense ratio is 0.35%
We highlighted the Build American Bond program in a September article. Unlike traditional muni bonds, the income payments from BABs are taxable. However, the yield gets a significant boost because the government subsidy pays 35% of the total yield. I do not own any at this time, but this fund looks interesting and I may be buying some soon.
Disclosure compliant with FTC 16 CFR Part 255 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.