Understanding the First Trust Alternative Absolute Return Strategy ETF (FAAR)

What this ETF is trying to do

The First Trust Alternative Absolute Return Strategy ETF, known by its ticker symbol FAAR, is an exchange-traded fund listed on the NASDAQ. While the specific investment strategy is not detailed in the data, it is categorized as an ETF rather than a single-stock or crypto-related fund.

What the numbers show

When looking at an ETF, it is important to understand the difference between "price return" and "total return."

• Price Return: This measures only how much the share price has changed.

• Total Return: This includes both the change in share price and any cash distributions (dividends) paid out to investors.

For FAAR, the numbers show:

• Year-to-Date (YTD): The price return is approximately 19.93%, while the total return is higher at approximately 20.87%.

• One Year: The price return was about 6.98%, but the total return was approximately 19.15%.

• Three Years: The price return was about 11.84%, while the total return was approximately 31.61%.

To visualize the price change, we can look at an estimated price from roughly one year ago, which was $30.40. The current price is $32.50.

Income and distribution explanation

Some investors look for ETFs that pay out cash regularly. This is called the distribution yield. For FAAR, the distribution yield is approximately 9.47%. This means the fund has paid out $3.08 in trailing distributions. These payments usually happen quarterly, and the data shows they most often occur on Thursdays.

It is important to remember that a high distribution yield does not mean the investor earned that same percentage as their total return. You must look at the "total return" figure to see how the investment performed overall.

NAV erosion explanation

NAV erosion is a term used to describe when the value of the underlying assets in a fund decreases significantly over time. Investors often care about this because they want to make sure their original investment stays stable while they collect income.

For FAAR, the erosion-risk score is 100, which is labeled as "No price erosion detected." There is no severe erosion-risk flag for this ETF.

Pros

• Positive Returns: The fund has shown positive price returns and total returns over the one-year, three-year, and five-year periods.

• High Yield: The fund offers a distribution yield of approximately 9.47%.

Cons

• Limited Holdings: The data shows only one top holding: MORGAN STANLEY INSTL LQUDTY TRS INSTL, which makes up 15.23% of the fund. (Note: The full list of holdings may change over time).

Beginner takeaway

When evaluating FAAR, notice that the total return is higher than the price return. This happens because the fund pays out cash distributions. While the distribution yield is high, always check the total return to see how the share price and payments work together. Currently, the data shows no detected price erosion.