Say what you want about merger arb but in any year of deep red stock prices results in the merger space greatly outperform. This year is no exception. Arbs did get hit with the news of a deal bust as DuPont (DD) walked away from its $5.2 billion acquisition of Rogers Corporation (ROG). But overall as usual a high percentage of all deals this year closed.

Each quarter I compile the top 10 stocks held in the funds that specialize in deal stocks and share it with Seeking Alpha readers.

My rules:

• I only count a stock if it is at least 1% of the fund's portfolio.
• I only include stocks that are still actively trading.
• I only choose funds where the majority of positions are merger-related.

First Horizon Corporation (FHN) leads the way in 23 of 29 funds. Nine months ago, The Toronto-Dominion Bank (TD) agreed to purchase FHN in an all-cash transaction worth $13.4B or $25/share. One note since the merger didn't close prior to November 27th, shareholders will receive, on closure, an additional $0.65/share on an annualized basis for the period from Nov. 27 through the day immediately prior to the closing. The merger is expected to close in December or January.

For the second consecutive quarter Activision Blizzard (ATVI) is in the top two. It is in 21 of the 29 funds. Microsoft (MSFT) is trying to buy Activision for $68.7 billion which is $95 per share in cash. Approval is needed from the FTC, the European Commission and the UK. There seems to be a headline on this deal almost everyday:

1. China's 'normal procedure' review of Microsoft's Activision deal may come soon
2. Activision Blizzard gains on report Microsoft likely offering EU concessions
3. Activision gains as report downplays Politico item on potential FTC Microsoft challenge
4. Microsoft prepared to go court if FTC tries to block Activision deal - report
5. Activision added to Wedbush Best Ideas List deal or no deal

Microsoft has guided to a 2023 close.

Top 10 Merger Arb Stocks Held By Funds

When a fund makes an M&A stock its top holding, it signals strong conviction that the deal will ultimately close. Two funds had Activision Blizzard as its top pick as of the end of the third quarter.

Top Positions Among The 30 Funds

Conclusion

While there is no substitute for doing one's own work and developing one's unique trading/investing style, looking at what some of the top hedge funds are doing with their money is quite valuable. These funds have more resources, staff and contacts that an individual investor can possibly have. As it pertains to M&A, it is wise to research the stocks held by these funds and see if they make sense as part of one's arbitrage portfolio or simply overall portfolio. I have done so for many years with success.