By Salvatore Bruno, Chief Investment Officer and Managing Director, IndexIQ

Not all risks are created equal; looking at merger arbitrage through a managed risk lens

That risk and reward are related is a key tenet of Modern Portfolio Theory (MPT) and portfolio construction. To achieve a return above the risk-free rate, usually figured as the yield on a 3-month U.S. Treasury bill, you have to assume some level of risk, but it’s important for investors to minimize exposure to those risks not associated with the expectation of positive returns and to manage the remaining risks to better the chances of seeing some of the “rewards” from the risk/reward relationship.

Looking at merger-arbitrage strategies like that employed by our fund, the IQ Merger Arbitrage ETF (MNA), we can break those risks into two categories:

  • Deal-specific risk, and
  • Stock price risk of the acquirer from deals being financed by stock (i.e. the acquirer’s stock price declines, negatively impacting the value of the transaction).

Deal-specific risk

Merger-arbitrage funds like MNA seek to take advantage of the positive difference in the announced price of a transaction and the current price. A recent example of this as it applies to MNA is the Meet Group (MEET), which received an all-cash offer of $6.30 per share on March 5th.  As deal completion risk rose during the early stages of the Covid 19 shutdown, the deal premium widened and the price of MEET fell. MNA added MEET during the April rebalance at $5.92.  The deal subsequently closed on Sept 8th at the original offer price of $6.30 and the fund made over 6% on the transaction.

But not every deal works out, creating vulnerability. The risk: when a transaction falls apart, the stock price of the target usually declines.

This can be mitigated by

Edinburgh Woollen Mill Group, the owner of Jaeger, Peacocks and Austin Reed, is teetering on the brink of administration putting up to 24,000 of jobs at risk.



a group of people standing next to a sign: Photograph: Alamy Stock Photo


© Provided by The Guardian
Photograph: Alamy Stock Photo

The group, controlled by entrepreneur Philip Day, has filed a notice of intention to appoint administrators, a legal document which provides protection from creditors for 10 days. The group had been seeking a buyer and will spend the next few weeks considering its options.



a group of people standing next to a sign: Edinburgh Woollen Mill Group, the owner of Jaeger, Peacocks and Austin Reed, pictured above in 2018.


© Photograph: Alamy Stock Photo
Edinburgh Woollen Mill Group, the owner of Jaeger, Peacocks and Austin Reed, pictured above in 2018.

Edinburgh Woollen Mill (EWM) said it was “responding to the harsh trading conditions caused by the impact of the Covid-19 pandemic and a recent reduction in its credit insurance”. .

It said it had received a number of expressions of interest for parts of the group in recent weeks and these were being assessed along with “all other options”.

However, the chief executive of EWM, Steve Simpson, said there would “inevitably be significant cuts and closures” and the group would appoint FRP Advisory as administrators to carry “necessary restructuring” of the business.

Simpson said: “Like every retailer, we have found the past seven months extremely difficult. This situation has grown worse in recent weeks as we have had to deal with a series of false rumours about our payments and trading which have impacted our credit insurance.

“Traditionally, EWM has always traded with strong cash reserves and a conservative balance sheet but these stories and the reduction in credit insurance – against the backdrop of the initial lockdown, current local lockdowns, and the second wave of Covid-19 reducing footfall have made normal trading impossible.

“As directors we have a duty to the business, our staff, our customers and our

You can increase your investment income by buying a mutual or exchange-traded fund that owns dividend-paying stocks. Whether you should is a thornier question.

Dividends can be dependable — many companies increase theirs year after year — but the prices of the stocks to which they’re linked won’t necessarily be so steady. A fund or E.T.F. of dividend payers provides no guarantee against losses.

So far this year, the S&P Dividend Aristocrats Index — an index of dividend payers in the S&P 500 — lost 2.6 percent year-to-date through Sept. 30, even after factor in those dividends. The S&P 500 returned of 5.57 percent, including dividends.

What’s more, the pandemic has increased the risks that dividends will be cut as some companies’ earnings and cash flow diminish.

“If you’re Walt Disney and you had to close all your parks, your cash flow dried up,” said Scott L. Davis, lead manager of the Columbia Dividend Income Fund. Disney announced in May that it was suspending its dividend for the first half of its fiscal 2020.

Dozens of companies have slashed their dividends this year.

“We’ve seen more cuts and suspensions in 2020 than we had in the prior 10 years,” said Christopher Huemmer, a senior investment strategist at Northern Trust Asset Management.

And the upheaval may not be over, especially with flu season overlapping with the pandemic this fall.

“If there’s another huge round of Covid and lots of shutdowns, I think you’ll see lots more companies get pinched and say they can’t afford their dividends,” said Clare Hart, lead manager of the JPMorgan Equity Income Fund.

Despite these heightened risks, Jennifer Ellison, a financial adviser at Bingham, Osborn & Scarborough in San Francisco, said she understands why people might want to add a fund or E.T.F. of dividend payers to

This post was contributed by a community member. The views expressed here are the author’s own.

Julia Gonzalez to handle the marketing efforts for all personal lines accounts.
Julia Gonzalez to handle the marketing efforts for all personal lines accounts. (Powers Insurance & Risk Management)

POWERS Insurance & Risk Management, one of the largest family owned and operated independent insurance agencies in the bi-state region, recently hired Julia Gonzalez as Personal Lines Sales Marketer.

In this position, Gonzalez will handle the marketing efforts for all personal lines accounts. This includes developing new client lead opportunities, as well as managing client retention support programs.

Gonzalez has more than five years of experience in the insurance industry. She previously served in numerous capacities including as a licensed producer, insurance specialist, and customer service representative.

“Julia is a trained professional who has excellent communication skills that will definitely benefit our company,” said Powers Insurance & Risk Management’s President JD Powers. “Her insurance background and training capabilities make her a welcome asset to our growing team.”

POWERS Insurance & Risk Management provides personal and business insurance, surety, and risk management. The company, which was founded in 1991, is located at 6825 Clayton Ave. For more information, call (314) 725-1414 or visit http://www.powersinsurance.com.

The views expressed in this post are the author’s own. Want to post on Patch?

The rules of replying:

  • Be respectful. This is a space for friendly local discussions. No racist, discriminatory, vulgar or threatening language will be tolerated.
  • Be transparent. Use your real name, and back up your claims.
  • Keep it local and relevant. Make sure your replies stay on topic.
  • Review the Patch Community Guidelines.

Source Article

(Bloomberg) — The Trump administration’s potential restrictions on two Chinese payments giants would reverberate far beyond politics, potentially affecting multibillion-dollar deals, shaking up international commerce and even shaping the evolution of the global financial system.



a person sitting on display in a store: An advertisement for Tencent Holdings Ltd.'s WeChat Pay digital payment service is displayed outside a restaurant in Hong Kong, China, on Tuesday, Sept. 1, 2020. WeChat Pay and Ant Group's Alipay account for the majority of the mobile payments transactions in China.


© Bloomberg
An advertisement for Tencent Holdings Ltd.’s WeChat Pay digital payment service is displayed outside a restaurant in Hong Kong, China, on Tuesday, Sept. 1, 2020. WeChat Pay and Ant Group’s Alipay account for the majority of the mobile payments transactions in China.

U.S. officials have stepped up behind-the-scenes talks in recent weeks about possibly restricting the expansion of Ant Group’s Alipay and Tencent Holdings Ltd.’s WeChat Pay over concerns that the digital payment platforms threaten national security, Bloomberg reported on Wednesday.

Loading...

Load Error

Read more: U.S. explores curbs on Ant Group, Tencent payment systems

If the administration proceeds, the most immediate hit would be to Ant Group’s plan for a stock listing in Shanghai and Hong Kong, a deal that could rank as the world’s largest initial public offering. Some international companies have been working with the payment apps and could see those strategies hurt or derailed. And while restrictions may ultimately head off potent competitors to U.S. and European banks, it could also — depending on how China responds — thwart their own planned expansion into the world’s second-largest economy.

Here’s a breakdown of the many companies with business at stake as President Donald Trump’s administration weighs its decision:

Ant’s IPO

Investors have been eager to pile into Jack Ma’s Ant Group. After gauging early interest, the company is seeking to raise at least $35 billion in its IPO, people familiar with the matter have said, potentially topping Saudi Aramco’s record $29 billion sale. Ant lifted the target based on an increased valuation of about $250 billion, which would exceed the market