About the Fund
The Accelerate Arbitrage Fund (TSX: ARB) provides exposure to a merger arbitrage investment strategy. The Fund aims to generate consistent, low-volatility returns by investing in listed equity, debt or derivative securities of target companies involved in mergers or corporate actions, while selling short certain listed equity, debt or derivative securities of acquiror companies involved in mergers or corporate actions, where applicable.
What is Merger Arbitrage
Merger Arbitrage is an investment strategy that capitalizes on the spread between a company’s current share price and the consideration paid for its acquisition in light of an announced merger transaction. The merger risk premium— or the spread between the acquisition price and the trading price of a stock—compensates the arbitrageur for the risk of the acquisition failing to close. The merger arbitrageur’s goal is to “lock in” the spread earned upon deal closing and to profit from buying a takeover stock at a discount to its acquisition price.
- Outperform the S&P Merger Arbitrage Index
- Generate consistent, low-volatility returns
- Provide an attractive distribution yield
ARB TRADING DATA
April 7, 2020
Accelerate Financial Technologies Inc.
3% Annual Yield Distributed Quarterly
Historical Track Record
Deal Evaluation & Selection
Accelerate uses regulatory filings, media, proprietary data screens, and sell-side analyst reports to source merger arbitrage investment opportunities. Once sourced, a deal is then placed into the merger database where the team conducts a review of the data through; press releases, merger agreements, proxy statements, and additional due diligence materials. A proprietary “AlphaRank” risk rating is then assigned to each merger transaction. Furthermore, Accelerate calculates 2 key factors in the selection process; the merger yield and the implied odds of success to determine the securities’ risk rating. If the merger yield is attractive, and exceeds the investor’s cost of capital, the team will move forward with the next step in the investment process.
Five key factors are considered to ensure that risks are appropriately managed:
• Does the buyer lack credibility?
• Does the financing source lack credibility?
• Is the deal non-definitive?
• What is the extent of the regulatory risk?
• Is there a buy-side vote?
Buy-side votes allow shareholders to vote against the original proposed deal in order to get a premium from a hostile interloper offering more, causing potential losses for an arbitrageur.
Position Sizing & Portfolio Management
This process aims to limit the risk of loss on a deal break to a -2% NAV decline. “AlphaRank” risk ratings are also considered when allocating position sizes. Riskier deals may represent smaller allocations in the portfolio.
Merger arbitrage is typically conducted on a company’s common shares. However, there may be other opportunities to earn a merger spread, including through a company’s preferred shares or bonds, or through derivative securities such as options or warrants. If one is trading the common shares of a target in an all-cash deal, then the trade is fairly simple: the trader places their bid for the target at the desired price and waits to get hit. If the deal includes stock consideration, the trader first has to ensure the short borrow is secured in order to short the acquiror’s stock. Once short borrow has been secured, the trader can set up the spread. To implement this type of trade, one should use a pair trader. Pair traders work by trading both legs of a merger arbitrage spread, being the target and acquiror, at the same time. The trader sets the desired merger spread into the pair trading system, based on the merger consideration, and gets filled on both legs long and short.
After successful deal analysis, risk mitigating, position sizing, and execution, the arbitrageur goes into monitor-mode. In the case of tender offers or takeover bids, shareholders must tender shares to receive the consideration amount, whereas in mergers, a vote must be cast and the type of consideration (cash or shares) elected. Shareholder votes and regulatory approvals need to be settled prior to the deal completion.
Performance as of 2020-Apr-30
|Ticker||1 Month||3 Months||YTD||1 Year||3 Year||Since Inception|
Under current regulations, fund performance can only be published one year after its inception.
Deal Type Exposure
Fund Holdings as of 2020-Apr-30
|Long Security Name||Weight|
|Northview Apartment REIT||5.1%|
|Tech Data Corp||4.7%|
|Cincinnati Bell Inc||4.5%|
|WABCO Holdings Inc||4.5%|
|Advanced Disposal Services Inc||4.3%|
|Legg Mason Inc||4.0%|
|Adesto Technologies Corp||3.8%|
|Tiffany & Co||3.7%|
|Acacia Communications Inc||3.6%|
|Taubman Centers Inc||3.5%|
|Gilat Satellite Networks Ltd||3.4%|
|Meet Group Inc||3.3%|
|ForeScout Technologies Inc||3.2%|
|Anixter International Inc||3.2%|
|TD Ameritrade Holding Corp||3.2%|
|Front Yard Residential Corp||3.1%|
|TerraForm Power Inc||3.1%|
|GAIN Capital Holdings Inc||2.8%|
|Carolina Financial Corporation||2.6%|
|SB One Bancorp||2.5%|
|Guyana Goldfields Inc||2.4%|
|Experience Investment Corp||2.2%|
|Craft Brew Alliance Inc||2.0%|
|Wright Medical Group NV||2.0%|
|El Paso Electric Co||1.8%|
|DFP Healthcare Acquisitions Co||1.6%|
|Amplitude Healthcare Acquisition Corp||1.6%|
|Delphi Technologies PLC||1.3%|
|Caesars Entertainment Corp||1.3%|
|East Stone Acquisition Corp||1.1%|
|Central European Media Enterprises||1.0%|
|dMY Technology Group Inc||1.0%|
|South Mountain Merger Corp||0.5%|
|CIIG Merger Corp||0.5%|
|InterPrivate Acquisition Corp||0.3%|
|Osprey Technology Acquisition||0.3%|
|MSB Financial Corp||0.1%|
|CHP Merger Corp||0.1%|
|Short Security Name||Weight|
|Charles Schwab Corp||-3.3%|
|Brookfield Renewable Partners||-3.1%|
|United Bancshares Inc||-2.6%|
|Provident Financial Services Inc||-2.6%|
|Silvercorp Metals Inc||-2.4%|
|Comtech Telecommunications Corp||-0.6%|
|Fidelity National Financial Inc.||-0.4%|
|Eldorado Resorts Inc||-0.3%|
|Kearny Financial Corp||-0.1%|