Nov. 19, 2004 — Prospects for funds that focus on mergers look good right now, observers say, because after a dry spell during the last three years, announced corporate takeovers and buyouts have picked up in recent months.
Through November 9th, 6,891 acquisitions valued at $609.3 billion had been announced, according to Thomson Financial. To put that in perspective, 7,579 deals valued at $538.1 billion were disclosed in all of 2003. A year earlier 6,920 deals worth $433.5 billion were announced. On Wednesday, Kmart agreed to buy Sears for $11.5 billion.
The increased activity enables fund managers to “cherry pick among the very best deals that are out there,” explains Regina Pitaro, a managing director with Gabelli Asset Management, which oversees the Gabelli ABC (GABCX) and the Enterprise Grp Mergers & Acquisitions Fund/A (EMAAX).
The faster pace of merger activity led Gabelli Asset Management to reopen the ABC Fund to new investors earlier this year. It had been closed since early 1992. The Enterprise fund is also accepting new investors.
In terms of their ability to generate positive returns, funds that look to profit from mergers and acquisitions have largely been successful. As a group, they have almost always been in the black over the short and long runs, recording slow and steady gains with low volatility.
Gabelli ABC has never had a losing year since its inception in 1994. The Enterprise fund was down in its inaugural year in 2002, but has been up since. “These are basically absolute return oriented. They try to make money in up markets and down markets,” said Mario Gabelli, who oversees both funds.
The 10-year-old Merger Fund (MERFX) lost money only in 2002, and the Arbitrage Fund/R (ARBFX), which opened its doors in 2001, has never ended a year in the red. Both funds, which are currently closed to new investors, were in negative territory this year through October.