About That Merger Fund

wxman123

For many years I observed the Merger fund without any real interest to buy. Seemed like a middling bond alternative in terms of performance. Not much to get excited about but a "safe" 2-4% return over time. Recently I had some money looking of a home and with both stocks and bonds seemingly overpriced I thought what the heck. Now, I know we all have experienced bad timing where good funds turn bad as soon as we invest...but this Merger thing has been a bit of a joke. It's down nearly every day and almost 4% since my purchase in June. I'd appreciate any insights from anyone more familiar with this fund.

Mark

MERFX for those playing at home.

As for your question I have no clue. Poor stock selection choices, expected mergers that didn't happen, one or both stocks took a dive, the market said who cares, I don't know. It's also hard to opine reasonably without insight into the mergers they are pursuing.

JD_co

I don't know how much this plays in, but in early July, President Biden announced his assault on monopolies. As such, he mentioned mergers/acquisitions. Since Merger arb funds started underperforming a few weeks before this announcement, assuredly there are additional reasons for the decline?

Following are some details from an article from Politico:

Mergers: The order would urge the FTC and DOJ to update guidance on how they review mergers, potentially pulling back on guidelines the Trump administration approved last year. Those guidelines focused on so-called vertical mergers, which involve companies that are not direct competitors but are in the same supply chain, and which have typically attracted little scrutiny from regulators. The FTC’s two Democrats opposed the Trump-era update, calling it overly deferential to business.

Changes to those guidelines could affect several pending deals, including Amazon’s proposed purchase of MGM Studios and UnitedHealth Group’s deal to buy Change Healthcare.

The order will also recommend that federal banking regulators work with the Justice Department to update guidance on bank deals. The DOJ partners with the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to vet bank mergers, but hasn’t changed how it looks at potential tie-ups since 1995.

Derf

Interesting ! Thanks @JD_co

JD_co

And an example of how some proposed purchases could be blocked sooner rather than later:

https://finance.yahoo.com/news/doj-considering-lawsuit-block-unitedhealth-222046184.html

Though Biden didn't make his general "crackdown" announcement until early July, its likely that the news had leaked to the investment community a bit earlier.

TheShadow

I have owned MERFX for numerous years with a nominal investment. With the pending acquisition by Virtus, existing shareholders of MERFX will be exempt from the paying load that Virtus is planning to imposed as the investor class will be converted to "A" class shares.

https://www.sec.gov/Archives/edgar/data/701804/000110465921088936/tm2121353d1_485apos.htm

Excerpts:

Class A shares. If you purchase Class A shares of a Fund, unless you qualify for a reduction or waiver of the sales charge you will pay a sales charge at the time of purchase equal to 5.50% of the offering price (5.82% of the amount invested). The sales charge may be reduced or waived under certain conditions, including that shareholders of Class A shares (formerly known as Investor Class shares) of a Fund as of [September 1, 2021,] will not be subject to sales charges on future purchases of Class A shares of that same Fund. (See “Initial Sales Charge Alternative—Class A Shares” below.) ...

(from page 81 of the above SEC filing)

Also, the filing states "If you fall within any one of the following categories, you will not have to pay a sales charge on your purchase of Class A shares, provided that such purchase is made upon the written assurance of the purchaser that the purchase is made for investment purposes and that the shares so acquired will not be resold except to the Fund:

(19)          Purchasers of Class A shares of a Fund who were already shareholders of that same Fund as of [September 1, 2021].

I own MERFX and EVDAX ( I was grandfathered from paying a load being an original investor in the Pennsylvania Avenue Event Driven Fund then with Quaker Funds and now Camelot).

Pennsylvania Avenue Event Driven Fund:

https://www.sec.gov/Archives/edgar/data/0001199131/000127351510000065/pa-prosp2010v4.htm

carew388

MERFX collapse was due to the collapse of the Aon/Willis Towers Watson merger agreement. DOJ had argued merger would reduce competition and raise prices in the insurance industry, so merger was called off due to regulatory concerns. This was a $30 billion deal, and the Merger Fund has 4+ billion in assets, so they figured this was an easy way to soak up some assets. Other event-driven funds with smaller asset bases stayed away from the deal, like VARAX . To me, it seems like Westchester Capital didn't perform due diligence with this deal, as apparently other fund houses sensed the deal's uncertainty. For me, I'm in the process of selling out of my entire position, and redeploying some of the assets into VARAX ntf at Schwab and Vanguard. ARBFX and BALPX were also hurt to a smaller degree by the collapse. I've invested in MERFX off and on for about 20 years, and this was a disappointing result that didn't have to happen !

msf

With the pending acquisition by Virtus, existing shareholders of MERFX will be exempt from the paying load that Virtus is planning to imposed as the investor class will be converted to "A" class shares.

Generally, the A class shares of Virtus funds are available load-waved, NTF through brokerages. Vanguard even sells their I (formerly Institutional) class shares NTF. Though it doesn't reduce the $100K min required.

https://personal.vanguard.com/us/funds/other/bytype?FundFamilyId=32619&view=Name

wxman123

carew388 said:

MERFX collapse was due to the collapse of the Aon/Willis Towers Watson merger agreement. DOJ had argued merger would reduce competition and raise prices in the insurance industry, so merger was called off due to regulatory concerns. This was a $30 billion deal, and the Merger Fund has 4+ billion in assets, so they figured this was an easy way to soak up some assets. Other event-driven funds with smaller asset bases stayed away from the deal, like VARAX . To me, it seems like Westchester Capital didn't perform due diligence with this deal, as apparently other fund houses sensed the deal's uncertainty. For me, I'm in the process of selling out of my entire position, and redeploying some of the assets into VARAX ntf at Schwab and Vanguard. ARBFX and BALPX were also hurt to a smaller degree by the collapse. I've invested in MERFX off and on for about 20 years, and this was a disappointing result that didn't have to happen !

Thanks for the info! Looking at PV it seems Merger has performed better than Vivaldi with limited exception, including this year. I hope Merger's misstep is not the start of a trend. I thought about the Nexpoint MA fund but I've had my fill of Dondero. I guess we'll see.

TheShadow

My MERFX shares are held by the transfer agent.

bee

Mergers seem to be part of the fabric of investing and is not always a positive sign for the company, nor their investors.

- Pepsi is selling Tropicana ($3.3 B will go private)...I wondered will this benefit Pepsi shareholders. Maybe.

/pepsico-sell-majority-stake-juice-business

- USAA Brokerage merged (sold) all of the assets to Schwab (for $1.8 Billion)... I asked the question to USAA...do USAA members receive any of the proceeds of this sale? Answer: no. So I moved my USAA brokerage assets to TD Ameritrade and received a $1K transfer bonus. Oops...come to find out, TD Ameritrade will soon also be Schwab (sold for $22B) .

Well at least I received something ($1K transfer bonus) for the disruption.

- Insurance companies merge...my life insurer "demutualized" and merged with Met Life. I received METLife stock as part of the merger...wished we had merged with Apple. As a result of this merger (demutualization) I will pay taxes on the capital appreciation of the stock shares I received when I sell them.

New England Mutual expects its credit rating to be raised to Met Life’s level, which could potentially attract more wealthy clients. Affluent policy buyers are particularly sensitive to low ratings of insurance companies.

The higher credit rating is also expected to make it easier for New England Mutual to dispose of troubled real estate assets that have dragged down its rating in recent years.

- Mutual funds merge into mutual funds:
When Funds Collide: What Happens When Funds Merge?

When Funds Collide, Survivors Often Suffer: Article (linked below) examines how business reasons that prompt fund mergers don't necessarily dovetail with the interests of the funds' shareholders. A fund company may simply be trying to bury a poor track record. More importantly, surviving funds tend to under perform after a merger

thestreet.com/investing/funds/mutual-funds/when-funds-collide