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ETFs for Increased M&A Activity

The IQ Merger Arbitrage ETF and the SPDR KBW Capital Markets ETF should benefit from an expected increase in mergers and acquisitions.

NEW YORK (TheStreet) -- IQ Merger Arbitrage ETF (MNA) - Get IQ Merger Arbitrage ETF Report and SPDR KBW Capital Markets ETF (KCE) - Get SPDR S&P Capital Markets ETF Report could benefit from what appears to be an improving mergers and acquisitions market.

According to a report by mergermarket and Merrill DataSite, the first six months of 2010 was 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. The total value of deals was up 8.7% from the same period a year ago.

The report noted another trend indicating a possible uptick in M&A activity: Private-equity firms posted 249 exits worth a combined $41.6 billion during the first six months of the year, compared with 337 exits totaling $35 billion for the entire year of 2009.

Going forward, M&A should be helped by the consolidation of community banks, as well as spinoffs and divestitures of larger banks' noncore operations, the report said.

The market should also benefit from the increased appetite of technology companies for media companies and digital assets, the report added. There should also be increased deal-making in the energy sector, it said.

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, 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 Aug. 17, MNA allocated 11.07% of its assets to

Smith International


, 8.27% to

Qwest Communications


and 7.17% to

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Hewitt Associates



SPDR KBW Capital Markets ETF, which holds stocks that benefit from increased M&A. Its top holdings include

Morgan Stanley

(MS) - Get Morgan Stanley Report


Goldman Sachs

(GS) - Get Goldman Sachs Group Inc. (The) Report


-- Written by Kevin Grewal in Houston.

At the time of publication, Grewal had no positions in equities mentioned.

Kevin Grewal is the founder, editor and publisher of

ETF Tutor and 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 a quantitative 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.