4 of Our Favorite Event-Driven Funds
Funds focusing on corporate actions, such as mergers and acquisitions, were solid performers in a volatile 2018.
Bobby Blue: Liquid alternatives that invest primarily in corporate activities stood out in a volatile 2018 with relatively strong performance. The median event-driven strategy returned 1.15% last year, and did so with low volatility and low correlation to equity markets. It's generally not a great idea to compare an alternative fund to the S&P 500, but in a year that saw the index lose more than 4% and go through two drawdowns greater than 10%, investors want a strong showing from their alternative investments. In this regard, event-driven strategies topped all other alternatives categories.
Managers on these strategies buy and sell financial instruments linked to companies involved in corporate actions; these include things like spin-offs, management changes, and mergers and acquisitions. They analyze these events, and attempt to identify the affect they will have on the company's fundamental value if they occur as announced. This analysis is a combination of art and science, and, particularly on the mergers and acquisitions front, requires an understanding of the financial and legal challenges these deals could face. If a deal fails to go through at the announced price, these funds could suffer big losses, which makes picking the right manager all the more important.
Bobby Blue does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.