Sustained M&A activity is boosting merger arbitrage-focused hedge funds, with the strategy’s low correlation to equities and other assets continuing to draw investors, according to Lyxor Asset Management.

Event driven strategies have bounced back this month, following underperformance during August, according to the Paris-based investor, which said several key deals in merger arb portfolios are set to be approved by the US Department of Justice.

These include CVS Health Corp’s planned $68bn acquisition of health insurer Aetna, and Cigna’s takeover of pharmacy benefit manager Express Scripts. Elsewhere, Comcast’s long-running plan to buy Sky pushed spreads lower in early September, boosting performance.

“The strategy appears to be perfectly fit for current market conditions, where downside risks remain elevated amidst high political uncertainty and rich valuations across equity markets,” Philippe Ferreira, senior strategist at Lyxor, said in a note this week.

He said deal spreads have narrowed lately, but the strategy maintains its appeal thanks to its low volatility in returns and low correlation to traditional assets. The beta of merger arbitrage returns versus the MSCI World has historically been below 10%.

He noted that rising stock prices – the S&P 500 reached a record high on 29 August, hitting 2,914.04 after sustained August gains – have helped narrow the gap between offer and stock prices.

The pace of deal activity this year has offered arbitrage opportunities for hedge funds across a range of industries. M&A activity in telecommunications, healthcare, utility and energy drove M&A activity in Europe during the first half of 2018, while the US saw a spike in consolidations in oil and gas, technology and healthcare.

In Europe, Q2 M&A volumes reached some $400bn, though deal volume is lower in Q3 so far, at $115bn. Yet activity remains buoyant across the Atlantic, where US deal volume has reached $266bn in Q3 so far (compared to almost $450bn in Q2). Ferreira said numbers for the full quarter will “probably” match the volumes reached during the same quarter last year.

Merger arb hedge funds boosted in early September on EuroHedge.