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Stock funds that benefit from mergers and acquisitions

- Alan Lavine and Gail Liberman

Expect to see several mutual funds benefit from a rising number of corporate mergers and acquisitions.

Fueling the trend: Low interest rates, soaring corporate profits and cash-rich companies.

Merger and acquisition activity in Europe already has hit its highest level in 20 years. And private equity funds are investing heavily in deals.Published reports indicate that there were more than $2 trillion in merger and acquisition deals in November.

Mario Gabelli, president of the Gabelli Funds, says that in addition to low-cost financing, new accounting rules are fueling this trend.

Want to invest in mutual funds that play the merger and acquisition game?

Lower-risk options, according to Morningstar Inc., Chicago, include:

  • The Gabelli ABC Fund.

  • The Arbitrage Fund, of Walter Island Capital LLC, New York.

  • Merger Fund, of Westchester Capital Management Inc., Valhalla, N.Y., which, at this writing, was closed to new investors

These funds invest in announced deals and profit when acquisitions are finalized. The funds use merger arbitrage investment strategies. Over the past five and 10 years, the funds have grown in the 6 percent to 7 percent annual return range.

Higher-risk funds include:

  • AXA Enterprise Mergers and Acquisition Fund. This fund uses merger arbitrage. But it also invests in companies that have the potential to be taken over.

  • The Gabelli Small Cap Growth Fund. This fund invests in smaller companies that sell below their private market value. The private market value is the value someone would pay to acquire the company, based on the value of independent parts. Many small companies may be acquired, Gabelli said.

Drawbacks to merger and acquisition funds: They may be forced to park money in cash when times aren't right. Plus often, announced deals can fall through.


Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.

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