AltShares Merger Arbitrage ETF (ARB US) – Portfolio Construction Methodology

The underlying Water Island Merger Arbitrage USD Hedged Index provides rules-based exposure to global merger arbitrage via long target and short acquirer positions hedged into USD. Eligible transactions are definitive takeovers in developed markets with deal value above USD 200 million, compensation in cash, stock, or both, and a calculable per-share deal value. Deals must be less than 365 days from announcement and offer a positive spread above USD 0.01; older deals must also clear a risk-free-rate hurdle based on a 30-day annualised spread. Position sizes are constrained by free float (≤5% of float), trading liquidity (≤33% of average daily volume, tighter at entry), and transaction-level loss limits calibrated to 50–200 basis points of NAV impact. Long positions use a liquidity-tiered scheme with 0.25–8% name caps and 25% sector caps, while matching acquirer shorts reflect stock consideration ratios. The index reconstitutes and rebalances twice monthly, sending completed deals to cash.

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