IndexIQ is set to begin trading its IQ ARB Merger Arbitrage ETF (MNA) tomorrow on the NYSE. The IQ ARB Merger Arbitrage ETF seeksto track, before fees and expenses, the performance of the IQ ARB Merger Arbitrage Index. The Index 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 differentiated 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.
Principal Investment Strategy
The Fund employs a “passive management” – or indexing – investment approach designed to track the performance of the Underlying Index. The Fund invests primarily in the components (“Underlying Index Components”) that make up the Underlying Index.
The Fund invests, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the investments included in its Underlying Index. The Underlying Index consists of a number of Underlying Index Components selected in accordance with IndexIQ’s rules-based methodology. Such Underlying Index Components will include primarily U.S. and non-U.S. equity securities. In tracking the Underlying Index, the Fund may invest in inverse and ultra-inverse ETFs, although the portfolio is expected to be predominantly non-ETF securities.
In addition, the Fund may invest up to 20% of its net assets in investments not included in its Underlying Index, but which the Advisor or Sub-Advisor believes will help the Fund track its Underlying Index. Furthermore, the Fund may invest in one or more financial instruments, including but not limited to futures contracts, swap agreements and forward contracts, reverse repurchase agreements, and options on securities, indices and futures contracts (collectively, “Financial Instruments”). As an example of the use of such Financial Instruments, the Fund may use total return swaps on the Underlying Index Components, in order to track its Underlying Index. Alternatively, the Fund may buy or sell futures contracts to replicate exposures to the Underlying Index Components. The Fund will not directly employ leverage in its investment strategies; nevertheless, it may indirectly be leveraged if and to the extent it invests in an Underlying Index Component that is a leveraged ETF or an ultra inverse ETF or otherwise invests in a Financial Instrument to replicate an exposure to such leveraged ETF or ultra inverse ETF.
The Fund may use a “Representative Sampling” strategy in seeking to track the performance of its Underlying Index. A fund using a Representative Sampling strategy generally will invest in a sample of its Underlying Index
Components whose risk, return and other characteristics closely resemble the risk, return, and other characteristics of the Underlying Index as a whole.
To the extent that the Fund’s Underlying Index concentrates (i.e., holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investment to approximately the same extent as its Underlying Index.
As Fund cash flows permit, the Sub-Advisor may use cash flows to adjust the weights of the Fund’s underlying investments in an effort to minimize any differences in weights between the Fund and its Underlying Index.
The “IQ ARB” Funds seek to track Underlying Indexes which incorporate “arbitrage” investment strategies into their rules-based processes, meaning they break down market segments into specific sub-segments and re-weight the sub-segments on a monthly basis using certain pre-determined criteria.
The Underlying Index’s objective is to employ a systematic investment process designed to identify opportunities in companies whose equity securities trade in developed markets, including the U.S., and which are involved in announced mergers, acquisitions and other buyout-related transactions. The Underlying Index seeks to capitalize on the spread between the current market price of the target company’s stock and the price received by the holder of that stock upon consummation of the buyout-related transaction. The Underlying Index first identifies companies that have been announced as targets of mergers, acquisitions, leveraged buyouts or private equity transactions, where the bidder is seeking a majority interest in the company. Based on certain criteria, the list of eligible index components is narrowed to include a smaller group of qualified companies segmented based on computations regarding the price differentials between the current market price of each target company’s stock and the announced price for the buyout-related transaction. From this smaller universe of companies, IndexIQ constructs a constrained liquidity-weighted group of Underlying Index Components, with position sizes limited by trading activity. In addition, the Underlying Index includes short exposure to the U.S. and non-U.S. equity markets, effected through a long position in inverse and/or ultra inverse ETFs, in order to isolate, at least in part, the merger arbitrage-related attributes of the Underlying Index from the general equity market exposure of the Underlying Index.
Pursuant to the Underlying Index’s rules, to the extent there are an insufficient number of target companies in which to invest, insufficient liquidity exists in such companies, or target companies are removed from the Underlying Index between monthly reconstitutions, the Underlying Index will allocate the available cash to one or more short-term fixed income ETFs. In seeking to track the Underlying Index, the Funds may invest, with approximately the same allocation proportions as the Underlying Index, in short-term fixed income ETFs, money market instruments, high-quality short-term debt securities, or derivative securities thereon. To the extent the Fund invests in cash and cash equivalents, the Fund will not be pursuing a merger arbitrage strategy.
The list of Underlying Index Components is reconstituted and their respective weights are rebalanced on a monthly basis. Current information on Underlying Index Components can be found at the Fund’s website at http://www.indexiq.com.
The Underlying Index Components of this Strategy generally provide exposures to U.S. and non-U.S. equity securities.
|IQ ARB Merger Arbitrage Index (IQMNA)|
|As of: 11/13/2009|
|ISHARES BARCLAYS SHORT TREASURY BOND FUND||27.49|
|STARENT NETWORKS CORP||8.76|
|BJ SERVICES CO||8.03|
|SUN MICROSYSTEMS INC||7.92|
|AFFILIATED COMPUTER SERVICES||5.95|
|MARVEL ENTERTAINMENT INC||5.67|
|PROSHARES ULTRASHORT S&P500||4.41|
|ULTRASHORT MSCI EAFE PROSHARES||4.41|
|MPS GROUP INC||4.2|
|SWITCH AND DATA INC||1.96|
|ALLIED CAPITAL CORP||1.47|
|NATCO GROUP INC A||1.3|
|SINO GOLD MINING LTD||0.87|
|AOZORA BANK LTD||0.45|
|UNITED MINERALS CORPORATION NL||0.44|
|HARLEYSVILLE NATL CORP (PA)||0.37|
|VERENEX ENERGY INC||0.35|
|VIRGIN MOBILE USA INC||0.33|
|AQUILINE RESOURCES INC||0.3|
|CATTOLICA ASSICURAZIONI SCRL||0.26|
For the prospectus click: HERE
For this ETFs webpage click: HERE