Understanding the FAAR ETF

What this ETF is trying to do

The FIRST TRUST ALTERNATIVE ABSOLUTE RETURN STRATEGY ETF (ticker: FAAR) is an exchange-traded fund listed on the NASDAQ. This type of fund uses specific strategies to try and achieve "absolute returns," which means it aims to make money regardless of whether the broader stock market is going up or down.

What the numbers show

As of July 16, 2026, the current price of one share is $31.34. Looking at how the fund has performed, the year-to-date total return is 16.55%. Over the last full year, the total return was 23.80%.

To see how price changes affect money, let's look at an example. Imagine you invested $10,000 into this ETF one year ago when the estimated price was about $28.19 per share. If you only looked at the price change (the price return), your $10,000 would have grown to roughly $11,115 based on the 11.15% price return.

Income and distribution explanation

Some investors look for ETFs that pay them regular cash, which is called a "distribution." This ETF has a distribution yield of 9.81%. Over the last 12 months, it made four distributions, usually on Thursdays.

It is important to remember that a high yield alone can be misleading. A high percentage might look attractive, but you must always look at whether the actual price of the ETF is staying healthy or falling.

NAV erosion explanation

"NAV erosion" happens when an ETF's share price drops significantly because it is paying out more money than it is actually earning. If a fund's price falls from a high amount to a much lower amount, it can destroy your "principal." Principal is the original money you put in. If the price collapses, you could end up with much less money than you started with, even if you received cash payments.

For this specific ETF, no price erosion was detected. The data shows a "good" erosion score, meaning the share price has been growing rather than shrinking.

Pros

• The fund has shown positive total returns over one year (23.80%) and three years (30.43%).

• There is no sign of severe NAV erosion.

• It provides a high distribution yield.

Cons

• High-yield investments can sometimes be risky if the price does not stay stable.

Beginner takeaway

Income investors usually prefer ETFs that go sideways (stay at the same price) or move slightly up. They prefer this over funds that "collapse" in price. This is because they want to collect the cash payments without losing their original investment. Based on the data, FAAR has shown price growth alongside its distributions.

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*Disclaimer: This report is for educational purposes only. It does not constitute financial advice. I am not recommending whether you should buy, sell, or hold this ETF.*