Alternative mutual funds such as Mario Gabelli’s (GABCX) Fund allow retail investors access to participate in merger arbitrage strategies.

An analysis published by Josh Ortner in Seeking Alpha draws attention to Gabelli ABC AAA GABCX, a merger arbitrage fund managed by Mario J Gabelli.

Since 1994, the fund has generated steady market-neutral returns of 5.21% CAGR.

It is a suitable market strategy in the current situation when equities are hitting new highs, and bond market yields touch new lows.

GABCX

This mutual fund is a good idea for investors looking for a bond fund alternative. Moreover, alternative mutual funds are a very fast-growing asset class.

The fund’s investment thesis is straightforward: Take advantage of merger arbitrage opportunities by purchasing the shares of a target company and shorting stocks of the acquiring company.

Retail investors typically do not have access to hedge funds that practice this strategy due to account minimum problems.

However, GABCX delivers consistent returns without much price volatility. It earned a compounded annual growth rate of 5.21% annually since its inception in 1994, with a standard deviation of only 3.22%.

Merger arbitrage strategies generally aim for a minimum return of two-percent premium over short-term Treasury bill rates. GACBX has successfully achieved this, both in the short and long term.

Tough to pick bonds over stocks and vice versa

Further, investors are finding it difficult and risky to invest in traditional assets like stocks and bonds, which are running at record highs.

Therefore, in the current market environment, investors can safely add GABCX as a diversification flavor. The alternative in the mix generates non-correlated returns along with the preservation of capital.

The merger arbitrage fund has an expense ratio of 0.55%.

Risk factors

Profiting from the merger spread is impossible if the deal falls through. Hostile bids have a higher chance of failing compared to a friendly bid. Long-drawn-out deals also have a higher chance of failure.

However, GABCX relies on multiple quality deals to offset these risks.

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