In the hedge fund space, CTAs and L\/S Equity funds outperformed lately. The former benefitted from the
\nrise in stock prices as well as from the USD appreciation. The latter was bolstered by its market beta and by
\nthe rebound in momentum stocks.<\/quote>
\n Event-Driven strategies underperformed, both last week and since end of
\nJune. The performance of the strategy has been dragged lower by Special Situations managers.<\/p>\nSo far this year, Merger Arbitrage strategies performed better than their Special Situations peers, but a key
\nmilestone looms this week. Qualcomm\u2019s USD 44 billion cash tender offer for NXP Semiconductors is
\nscheduled to expire this week, and the approval from the new Chinese super-regulator (SAMR) is still
\npending. The acquisition was announced in October 2016 and the tender offer has already been extended
\nmany times. The biggest-ever deal in the semiconductor industry appears to be a hostage of the trade war
\nbetween the U.S. and China, though the SAMR approved smaller semiconductor deals involving U.S. companies earlier in the year, such as the Microsemi vs. Microchip merger.
\nThe SAMR can once again delay the deal review before its expiry on July 25 but it has been reported that
\nQualcomm doesn\u2019t plan to seek for an extension. The risk of a major deal break looms but we argue that
\nthe impact on the performance of Merger Arbitrage strategies is likely to be contained. Anecdotal evidence
\nsuggests fund managers have significantly reduced their exposure to the deal over the recent weeks.<\/p>\nMoreover, the deal premium (i.e. the gap between the tender offer and the current stock price), which
\ncurrently stands in excess of 20%, largely prices in a deal break.
\nFinally, the likelihood of a contagion from
\nthis potential deal break to other parts of Merger Arbitrage portfolios is low, in our view. Overall, the strategy
\nstays attractive in current market conditions (low correlation to stock returns, low volatility). <\/quote><\/p>\n
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