When the world's largest mining company tries to buy the third-largest mining company, you can expect the Earth to move. Rio Tinto Group (RTP) - Get Report shook off the opening takeover bid, rejecting an advance by BHP Billiton (BHP) - Get Report.

On Thursday, Rio Tinto's stock jumped 23.1%, while BHP Billiton's shares opened down and finished the session off 4.1%.

Buyer's of the Rio Tinto are hoping that BHP Billiton won't take no for an answer and raise the offer. At a high enough price, Rio Tinto's board may be forced to realize that selling the company may be in the best interest of Rio Tinto's shareholders.

If you believe, as they do, that there is even more upside potential in Rio Tinto, then the only question is how to play it. Some speculators make their living buying companies that are about to be acquired while simultaneously selling short the acquirer. Once the target company's stock rises to the purchase price and all the premium has been squeezed out of the deal, they reverse the trade, buying back the short position and selling the long position.

That high-risk, high-reward strategy is not appropriate for most of us. If a deal never happens, Rio Tinto shares may crater as sharply as they rose. In this environment, having Rio Tinto as a stock holding of a mutual fund gives you a piece of the action without exposing you to unnecessary risk.

Mining TheSteet.com Ratings' extensive mutual fund database, I found a few hundred funds with a small percentage of their assets invested in Rio Tinto stock. Two open-end mutual funds are ranked among those with the highest exposure to this takeover target, both from the CGM family of funds managed by Kenneth Heebner.

The

(CGMRX) - Get Report

CGM Realty Fund (CGMRX), rated C-minus, had 7.05% of assets in Rio Tinto as of June 30, according to

Bloomberg

. Unfortunately, this fund also had 6.75% in BHP Billiton, offsetting potential gains.

A better choice to capture the upward move in a Rio Tinto buyout by BHP Billiton is the, A-plus-rated,

(NEFGX)

Natixis CGM Advisor Targeted Equity Fund (NEFGX) with a 4.91% allocation to Rio Tinto. Even though the fund does have a stiff 5.75% front load, it does not have BHP Billiton listed as a holding.

The best way to avoid paying loads and elevated expense ratios is with exchange-traded funds. The

Market Vectors Steel Index Fund

(SLX) - Get Report

, which tracks the Amex Steel Index, has 12.73% of its assets in Rio Tinto with no offsetting position in BHP Billiton. This ETF charges an expense ratio of just 0.5%.

This fund began trading on Oct. 16, 2006, and with one year of history under its belt, it is eligible to be rated later this month. Since the fund has returned 98.6% in one year and 103.6% since inception for the period ending Oct. 31, I have high hopes for a good rating even after accounting for the fund's commensurately sized volatility.

Please note that a fund's allocation to any one specific stock is subject to dramatic changes due to price movements as well as buying and selling by the funds' managers. There is no guarantee that a fund continues to hold a stock after its semiannual reporting date. This is one more reason to choose an exchange-traded fund in which disclosures of holdings are much more timely and transparent.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.