Accelerate Arbitrage Fund

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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.

Investment Objectives:

  • Outperform the S&P Merger Arbitrage Index
  • Generate consistent, low-volatility returns
  • Provide an attractive distribution yield
QUICK FACTS

Type:
Event-driven

Structure:
Alternative ETF

Date Started:
April 7, 2020

Management Fee:
0.95%

Performance Fee:
None

Investment Manager:
Accelerate Financial Technologies Inc.

Distribution:
3% Annual Yield Distributed Quarterly

Exchange:
TSX

Currency:
CAD

Risk Rating:
Low

Historical Track Record

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Investment Process

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.

Risk Management

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.

Execution

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.

Deal Monitoring

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.

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Performance as of 2020-Jul-31

Ticker1 Month3 MonthsYTD1 Year3 YearSince Inception
ARB0.4096%n/an/an/an/an/a

Under current regulations, fund performance can only be published one year after its inception.

Fund Exposure
Deal Type Exposure

Fund Holdings as of 2020-July-31

Long Security NameWeight
Guyana Goldfields Inc5.7%
Northview Apartment REIT Units4.8%
QIAGEN NV4.3%
Cincinnati Bell Inc4.3%
LogMeIn Inc4.2%
Advanced Disposal Services Inc3.7%
Meet Group Inc3.6%
Wright Medical Group NV3.0%
Craft Brew Alliance Inc2.7%
TD Ameritrade Holding Corp2.7%
Tiffany & Co2.4%
On Deck Capital Inc2.1%
Taubman Centers Inc2.0%
Alacer Gold Corp2.0%
Churchill Capital Corp IV Units2.0%
ForeScout Technologies Inc1.9%
Delphi Technologies PLC1.9%
TMAC Resources Inc1.7%
Galileo Acquisition Corp1.3%
Fitbit Inc1.2%
Landcadia Holdings II Inc1.2%
Property Solutions Acquisition Corp Units1.2%
Gilat Satellite Networks Ltd1.2%
East Stone Acquisition Corp1.0%
Central European Media Enterprises1.0%
CITIC Capital Acquisition Corp0.9%
Netfin Acquisition Corp0.9%
Trine Acquisition Corp0.9%
DiamondPeak Holdings Corp0.9%
Far Point Acquisition Corp0.9%
Gig Capital 3 Inc Units0.9%
InterPrivate Acquisition Corp Units0.9%
New Providence Acquisition Corp0.9%
GX Acquisition Corp0.9%
GigCapital2 Inc0.9%
Acamar Partners Acquisition Corp Warrants0.9%
Mountain Crest Acquisition Corp Units0.9%
Malacca Straits Acquisition Corp Units0.9%
PTK Acquisition Corp Units0.9%
Novus Capital Corp0.9%
Fortress Value Acquisition Corp Warrants0.9%
SC Health Corp0.9%
Pivotal Investment Corp II0.8%
Osprey Technology Acquisition Corp0.8%
Cardinal Resources Ltd0.8%
Juniper Industrial Holdings Inc0.7%
Amplitude Healthcare Acquisition Corp0.7%
Experience Investment Corp0.7%
Yunhong International Units0.7%
LGL Systems Acquisition Corp0.7%
Torstar Corp0.6%
Roth CH Acquisition I Co0.6%
Union Acquisition Corp II0.5%
DFP Healthcare Acquisitions Corp Units0.5%
Gig Capital 3 Inc0.4%
InterPrivate Acquisition Corp0.4%
RMG Acquisition Corp0.4%
Longview Acquisition Corp0.3%
SCVX Corp0.3%
dMY Technology Group Inc0.3%
Live Oak Acquisition Corp0.2%
PropTech Acquisition Corp0.2%
South Mountain Merger Corp0.1%
CIIG Merger Corp0.1%
Juniper Industrial Holdings Inc Units0.1%
Leisure Acquisition Corp0.1%
Fortress Value Acquisition Corp Warrants0.1%
Landcadia Holdings II Inc Warrants0.1%
Pivotal Investment Corp II Units0.1%
Short Security NameWeight
Charles Schwab Corp-2.7%
Brookfield Renewable Partners-2.7%
Enova International Inc-2.1%
SSR Mining Inc-2.1%
BorgWarner Inc-2.0%
Brookfield Renewable Corp-0.7%
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