Episode 19: Merger Arbitrage - Taking Advantage of Market Dislocations
In this episode, Portfolio Managers John Orrico and Roger Foltynowicz discuss how recent market volatility has created an opportunistic environment for the merger arbitrage strategy.
[Transcript]
The discussion of market trends and companies throughout this podcast are not intended as advice to any person regarding the advisability of investing in any particular security or strategy. Any securities mentioned are selected for discussion purposes only and may not represent current holdings of Water Island Capital, LLC ("Water Island") or The Arbitrage Funds. Our views, opinions, and estimates – including any forward-looking statements – are a reflection of our best judgment at the time of recording and are subject to change based on market and other conditions. Water Island is under no obligation to update or revise any such views or statements, except as required by law. Past performance is no guarantee of future results. Additional information about Water Island can be obtained from our Form ADV, which is available at adviserinfo.sec.gov. View top ten holdings. Visit the glossary for definitions of terms.
The S&P 500 Total Return Index (“S&P 500”) is an index of U.S. equities meant to reflect the risk/return characteristics of the large cap universe, and is one of the most commonly used benchmarks for the overall U.S. stock market. The Bloomberg U.S. Aggregate Bond Total Return Index (“Bloomberg Agg”) covers the U.S. investment grade fixed rate bond market. Indexes are unmanaged and one cannot invest directly in an index. Indexes are shown for informational purposes only.
View the Arbitrage Fund’s standardized returns. The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling (800) 295-4485. Returns shown above include the reinvestment of all dividends and capital gains. Total Annual Fund Operating Expenses for ARBNX, ARBFX, ARGAX, and ARBCX are 1.49%, 1.74%, 1.74%, and 2.49%, respectively. Total Annual Fund Operating Expenses for ARBNX, ARBFX, ARGAX, and ARBCX, excluding the effects of taxes, interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, and other costs incurred in connection with the purchase or sale of portfolio securities, are 1.28%, 1.53%, 1.53%, and 2.28%, respectively. Class A shares have a maximum front-end sales charge of 2.75%. A deferred sales charge of up to 1.00% may be imposed on purchases of $250,000 or more of Class A shares purchased without a front-end sales charge that are redeemed within 18 months of purchase.
RISKS: Investments are subject to risk, including possible loss of principal. There can be no assurance that the fund will achieve its investment objectives. The fund uses investment techniques and strategies with risks that are different from the risks ordinarily associated with equity investments. Such risks include merger arbitrage risk (in that the proposed reorganizations in which the fund invests may be renegotiated or terminated, in which case the fund may realize losses); short sale risk (in that the fund will suffer a loss if it sells a security short and the value of the security rises rather than falls); concentration risk; high portfolio turnover risk (which may increase the fund’s brokerage costs, which would reduce performance); foreign securities risk (in that the securities of foreign issuers may be less liquid and more volatile than securities of comparable US issuers, and may be subject to political uncertainty and currency fluctuations); market risk; sector risk; derivatives risk; LIBOR rate risk; hedging transaction risk; counterparty risk; swap risk; options risk; liquidity risk; active management risk; investment company and ETF risk; leverage risk; small and medium capitalization securities risk; currency risk; and temporary investment/cash management risk. Risks may increase volatility and may increase costs and lower performance.
Arbitrage Fund top ten holdings as of March 31, 2022: Alleghany Corp; Anaplan Inc; Cerner Corp; Coherent Inc; Houghton Mifflin Harcourt Co; Mandiant Inc; Rogers Corp; Water Island Event-Driven Fund; Welbilt Inc; Willis Towers Watson PLC. Top ten holdings represent 28.1% of the portfolio. Holdings are subject to change. Current and future holdings are subject to risk.