ETFs For Increased M&A Activity (MNA, SII, Q, HEW, KCE, MS, GS)

As companies continue to put out good earnings reports and cash flow lending comes back to life, it appears that there is an improved market sentiment in the mergers and acquisitions spectrum.

According to a report by mergermarket and Merrill DataSite, the first six months of 2010 has a relatively active M&A season and the trend is expected to continue for the rest of the year.  The first half of 2010 witnessed 1,701 deals resulting in transactions of $362.3 billion with value increasing 8.7% from the same time period a year ago.

Another trend indicating an uptick in M&A activity is that private equity firms posted 249 exits worth a combined $41.6 billion during the first six months of the year, compared to 337 exits totaling $35 billion for the entire year of 2009. 

As for the future of M&A, it is expected that consolidation of community banks, asset sales, spin-offs and divestitures of larger banks’ non-core operations, the increased appetite of technology companies for media companies and digital assets as well as increased deal making in the energy, oil and has sector is expected to allow the sector to remain busy for the remainder of the year.  The report also indicated that there are sector-specific regulatory developments that may drive an increase in M&A through the second half of 2010.

Some ways to cash in on this anticipated increase in M&A activity is through the following ETFs:

  • IQ Merger Arbitrage ETF (NYSE:MNA), which seeks to achieve capital appreciation by investing in global companies for which there has been an announcement of a takeover by an acquirer. MNA’s goal is to generate returns that are representative of global merger arbitrage activity. As of August 17, 2010, MNA allocated 11.07% of its assets to Smith International (NYSE:SII), 8.27% to Qwest Communications (NYSE:Q) and 7.17% to Hewitt Associates Inc (NYSE:HEW).
  • SPDR KBW Capital Markets ETF (NYSE:KCE), which holds stocks that benefit from increased M&A. Its top holdings include Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS). 

Written By Kevin Grewal from Smart Stops  Disclosure: No Positions

Kevin Grewal serves as the editor at, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton.

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