Merger Arbitrage hedge funds gained 4.4% in the third quarter, standing out as the best-performing strategy for the period, beating every category in event-driven, equity, macro and value funds, according to Hedge Fund Research .
"The merger arbitrage strategy has historically thrived in a rising interest rate environment when an investor's fixed income portfolio may have suffered losses," said Michael Peck, co-chief investment officer at First Trust.
As the proposed deal nears completion, the target's stock typically rises and the acquirer's shares fall.
This short-term trading strategy often utilized by fast-money hedge funds typically involves multiple long and short positions, and might be too sophisticated for the average individual investor.
The First Trust Merger Arbitrage ETF (MARB) and the IQ Merger Arbitrage ETF (MNA) are two popular ones that capitalize on the technique.
Persons:
Bill Gross, Pimco, Michael Peck, Michael Kors, Jimmy Choo, there's, Gross, Broadcom's, Warren Buffett
Organizations:
Fund Research, First Trust, Gross, Activision Blizzard, Microsoft, Capri Holdings, Capri, VMware, Broadcom, Activision