This is the weekly Merger Arbitrage Performance Review – May 23, 2021. This report focusses on the performance of the MX, SOGO, AJRD & CCRC merger arbitrage spreads during the period 17th May – 21st May. These stocks were selected from the weekly largest top 20 investable US cash based merger spreads that was available as at 16th May, immediately prior to the analysis period. Investors and traders can follow the latest Top 20 (T20) list each week compiled by Merger Arbitrage Limited to review this week’s largest pending cash merger arbitrage spreads. Regular followers will already be familiar with our rules for inclusion in the T20 Index.
Following the performance table of investment returns, the first section of this report compares and reviews the performance of the broader market with the MNA. Then we more specifically discuss the performance of the overall T20 Index. The next sections detail the biggest winners & losers from the T20 portfolio followed by the conclusion. The information contained in this weekly Merger Arbitrage Performance Review – May 23, 2021 assists traders in making merger arbitrage investments and event driven trading decisions. Click this link for the archive of spread performance reviews from previous weeks.
News junkies can find additional live news updates for deals listed in the T20 Index on our customized T20 Index news feed. Even more specific merger details & news can be found on the dedicated news and merger factsheet pages including popular deals such as IIVI–COHR, CHNG, PNM & AJRD.
Table of Returns
Merger Arbitrage Performance Review - May 23, 2021
| Merger Arbitrage Limited | The Market | ||
|---|---|---|---|
| Product | Weekly Change | Product | Weekly Change |
| T20 Index | 0.41% | SPY | 0.39% |
| Index Dispersion | 1.40% | VIX | 7.12% |
| Winners | 12 | MNA | 0.12% |
| Losers | 6 | ||
Market Performance Review
A volatile week saw the broader market oscillate wildly as traders tried to position themselves for a transitioning economic environment. The fear of inflation and the subsequent possibility of higher interest rates has put the market in a flux. By the end of the week, the broad based SPDR S&P 500 ETF (SPY) had finished lower by 0.39%. Although enduring such a volatile week, the VIX responded and moved accordingly. By the end of the week, the fund was showing a gain of 7.12%.
The IQ Merger Arbitrage ETF (MNA) also struggled throughout the week but eventually moved into positive territory. A fall in Kansas City Southern (KSU) which has not received a higher bid from Canadian Pacific (CP) retreated somewhat but was not enough to drag the index lower. By the close on Friday, the ETF was showing a loss of 0.12%. Following this drop, the fund is just holding on to positive territory for the calendar year showing a gain of 0.24%.
Merger Arbitrage Portfolio Performance Review
Cash merger arbitrage spreads as measured by the Merger Arbitrage Limited T20 Index also gained during the week. The main driver of performance came from the recovery in Magnachip Semiconductor (MX) flowing positive statements from the CEO regarding fears over Korean and Chinese regulatory approval.
There were no closed deals during the week from last week’s index constituents. However, as we approach the middle of the second quarter, a number of deals closures look imminent. Deals such as Soliton (SOLY) and Ferro (FEO) have been announced and are now included in the index. Traders can find more spread details regarding this week’s index list on our Spread Tracker page.
By the close on Friday, the T20 index was in positive territory finishing up for the period by 0.41%. The index was comprised of a complete complement of 20 merger arbitrage cash deals. Winners outpaced by the losers by a margin of 12 to 6 with 2 non-movers. The standard deviation of the individual index returns was 1.40%. This figure is above both the long-term average and medium term average level.
Merger Arbitrage Performance Review - May 23, 2021
Magnachip Semiconductor (MX)
All stocks reviewed this week were in last week’s report showing the volatile nature of this particular subset. A warning in itself to those who adhere to disciplined risk management principles. Having been the best performer in the index on a number of occasions, Magnachip Semiconductor (MX) appears to have planted itself firmly at the top of the best performers once again as the stock continues its recovery. The stock gained through the week as fears allayed that South Korean regulatory approval might not be forthcoming. By the end of the week, the stock had finished positively, up $1.26 at $24.03, a rise of 5.53% against an offer price of $29. This now gives a simple spread at 20.68% and is by far the highest in our merger arbitrage index.
As a speculative endeavor, we had taken a slightly larger positon as the spread has widened. We have exited part of this position and expect to sell more of the position should the stock continue to rise. We do not anticipate holding this position until deal resolution.
Sogou (SOGO)
By the close on Friday, the stock had finished higher by $0.18, at $8.42, a gain of 2.18%. This leaves the simple spread at 6.89%, and is now the third largest in the index. The stock moved higher as previous reports that SAMR was about to grant approval for the deal had not materialized. However, we are happy to maintain our positions and have had the courage of our convictions.
As we have a slightly larger position than normal in this stock, we will most likely look to take some profits during the coming week as the stock improves. This is in keeping with our proprietary risk management principles.
Aerojet Rocketdyne (AJRD)
Following a previous decline, we stated we had opened a small position in this stock that has now just turned into a healthy profit. We are happy to maintain the position for the time being. By the end of the week, the stock finished higher by $0.58 at $47.93, a rise of 1.22%. Against an offer price of $51, this leaves the simple spread at 6.41%. The expected closing date is still a long and rather vague expectation of 2H, 2021.
China Customer Relations Centers (CCRC)
We are happy to maintain our position for the time being. We initiated a small position in this stock at around the $6 level following a previous drop. By the end of the week, the stock finished lower by $0.09 at $6.17, a fall of 1.44% against an offer price of $6.50. This leaves the simple spread at a healthy 5.35%. The company expects the deal to close in 2Q, 2021.
