First Trust Alternative Absolute Return Strategy ETF (FAAR) seeks to generate positive returns in both rising and falling markets through an actively managed multi-strategy approach. The fund employs various alternative investment techniques including long/short equity positions, derivatives, and tactical asset allocation to target absolute returns regardless of market direction.
How It Works
FAAR uses an actively managed approach combining multiple alternative strategies including long/short equity positions, options strategies, and tactical allocation across asset classes. The fund's portfolio managers can take both bullish and bearish positions using derivatives and short selling to potentially profit from market declines. Holdings are dynamically adjusted based on market conditions with no fixed rebalancing schedule, allowing for opportunistic positioning across global markets and asset classes.
Key Features
- Multi-strategy alternative approach designed to generate positive returns in both bull and bear market environments
- Active management allows dynamic positioning using derivatives, short selling, and tactical asset allocation strategies
- Currently shows 2.74% dividend yield despite alternative strategy focus, providing some income component
Risks
- This ETF can lose value if alternative strategies fail to perform as expected, with complex derivatives potentially amplifying losses during volatile periods
- Active management risk means underperformance versus benchmarks if portfolio managers make poor timing or security selection decisions
- Alternative strategies may underperform traditional investments during strong bull markets when long-only equity exposure would be preferable
Who Should Own This
Best suited as a satellite holding (5-15% allocation) for sophisticated investors with medium-to-high risk tolerance seeking portfolio diversification. Appropriate for investors with 3+ year time horizons who understand alternative strategies and want potential downside protection during market declines while accepting complexity and active management risks.