Enormous transactions in media, food and health care are capturing the headlines. AT&T and DirecTV, Medtronic and Covidien, Actavis and Forest Labs — each of these deals exceeds $40 billion. According to financial data provider Dealogic, year-to-date global merger and acquisition dollar volume puts 2014 in the top five of the past 20 years.

It’s a bonus to own a stock that pops in price on a takeover offer. But is there a more systematic way to take advantage of these deals? Yes. Merger-arbitrage, a subcategory of the broader “event-driven strategies” category, can represent the most direct way to invest in mergers. Institutions have long used merger-arbitrage funds to diversify stock market risk. Annual returns are much less volatile than those in the overall markets.

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