The concept if investability is ability with which an investor or trader can make an investment in a given product, usually of a financial nature. At a basic level, stocks would be considered an investable product for most private investors. Preferred stock and even bonds would also be included. However, private equity investments would generally not be possible or advisable. Therefore, the concept of investability needs to be explained within the context of where it is being used. For example, Merger Arbitrage Limited highlights investability as the guiding principle for the construction of the T20 Portfolio. This index is constructed as a representative index of the largest cash merger arbitrage spreads available to investors for investment. See below for further details of this concept.
Investability Example
Merger Arbitrage Limited only includes stocks in the merger arbitrage spread list in which a trader can reasonably take a position. Stocks that exhibit a low bid-ask spread or a high traded volume have characteristics which would be considered “investable”. Stocks that are thinly traded would have a low level of investability and thus not eligible for inclusion in the index. For a full discussion of these guideline please see our eligibility rules for index inclusion.
Although it is still possible to make an investment in these stocks, and despite the potential greater level of return, there are greater risks attached to such investments, such as liquidity. An issue which may be of great concern to novice investors (for a guide on getting started with merger arbitrage investing, please see our article How to Profit from Merger Arbitrage Trading). In addition, stocks with low volume and which are thinly traded may throw up erroneous data points. Again, giving the stock a low level of investability and rendering the share ineligible for inclusion in the index.
For more details on our T20 portfolio inclusion criteria please see our spread tracker eligibility rules page. To obtain weekly updates of our merger arbitrage coverage, please register using our sign up page.
