Index IQ has launched the first merger arbitrage ETF.

The IQ ARB Merger Arbitrage ETF (MNA) tracks an actively managed index that invests in global companies that are the target of a merger or takeover. The fund’s strategy is to take advantage of the price differential, where it exists, between the current trading price of a stock and the price of that stock at the time the deal is completed – a strategy generally known as “merger arbitrage.”

IndexIQ points out that Merger Arbitrage funds typically have the potential to benefit from buying target companies below the target price. The “spread” in price, the difference between the target price and market price, can be quite lucrative for investors, especially if there are competitive bids for a company.

The fund also maintains a short exposure to global equities as a partial equity market hedge.

Top holdings include Starent Networks, BJ ServicesSun Microsystems and Cadbury.  The expense ratio is 0.75%.

For more ETF investing choices, see the strategy ETF directory