Want a leg up in the game of predicting the next takeovers? This exchange-traded fund might help.
Fifty-seven members of the TrimTabs Float Shrink ETF have been acquired in the past three years––more than one per month. The ETF gained 70 percent as those mergers handed about $100 billion to shareholders of the target companies, according to data compiled by Bloomberg.
Even though the fund doesn’t aim to track mergers, it has outperformed other ETFs that do and even some of the biggest hedge funds that wager on deals.
Some of analysts’ current top takeover picks––such as Starwood Hotels & Resorts Worldwide Inc., Zoetis Inc. and Scripps Networks Interactive Inc.––are held in this $225 million ETF.
It chooses companies from the Russell 3000 Index that have a decreasing share supply, strong free-cash-flow growth and a declining ratio of debt to assets.
Past investments include botox maker Allergan Inc., which was bought by Actavis Plc for $65 billion in last year’s most high-profile bidding war, and Kraft Foods Group Inc., which Warren Buffett and 3G Capital are merging with H.J. Heinz.
“It’s really interesting because we didn’t create the strategy to speculate on M&A,” Minyi Chen, the fund’s manager, said in a phone interview from Sausalito, California. “But the companies we hold tend to be attractive targets.”
The ETF has been drawing more investor interest. The number of shares outstanding has increased more than 50 percent during the past year to 3.95 million, data compiled by Bloomberg show.
ETFs represent a bundle of securities, so an investor in an ETF is buying a share of that bundle. The funds trade on stock exchanges the same way individual companies do.
Target Profiles