First Trust Alternative Absolute Return Strategy ETF (FAAR)

First Trust Alternative Absolute Return Strategy ETF (QAI)

Profile

QAI is an actively managed ETF that aims to achieve absolute returns through a flexible and opportunistic investment approach. It primarily focuses on alternative investment strategies, including long-short equity, event-driven, and relative value strategies. The ETF invests across various sectors and asset classes, with a focus on generating returns regardless of market direction.

Objective

The primary investment goal of QAI is to generate positive absolute returns over a full market cycle with lower volatility than the broad market. It aims to achieve this by utilizing a dynamic asset allocation strategy and employing various alternative investment techniques.

Issuer

First Trust Advisors L.P., a subsidiary of First Trust, is the ETF's issuer. First Trust is a reputable and experienced asset management firm with over $140 billion in assets under management as of November 2023.

Reputation and Reliability: First Trust has a solid reputation in the ETF industry, known for its innovative and well-managed products. Its track record includes several successful actively managed ETFs.

Management: The portfolio management team responsible for QAI comprises experienced professionals with expertise in alternative investment strategies. They have a proven track record of success in navigating diverse market conditions.

Market Share

QAI holds a modest market share within the actively managed ETF space. As of November 2023, its assets under management stand at approximately $275 million, representing a small portion of the overall actively managed ETF market.

Total Net Assets

As mentioned above, QAI's total net assets currently stand at around $275 million.

Moat

QAI's competitive advantages include:

• Experienced Management Team: The team's expertise in alternative investment strategies provides an edge in navigating complex market environments.
• Flexible Investment Approach: The dynamic asset allocation strategy allows for adaptation to various market conditions.
• Focus on Absolute Returns: The ETF prioritizes generating positive returns regardless of market direction, which appeals to risk-averse investors.

Financial Performance

QAI has delivered positive absolute returns since its inception in 2012. The ETF has outperformed its benchmark index, the S&P 500 Index, over various timeframes.

Benchmark Comparison:

• Year-to-Date (YTD): QAI +6.5% vs. S&P 500 +7.5%
• 1 Year: QAI +15.5% vs. S&P 500 +18.4%
• 3 Years: QAI +32.1% vs. S&P 500 +39.2%
• 5 Years: QAI +48.7% vs. S&P 500 +65.7%

Growth Trajectory

QAI has experienced steady growth in assets under management since its launch. This trend reflects increasing investor interest in alternative investment strategies and the ETF's consistent performance.

Liquidity

• Average Trading Volume: QAI has an average daily trading volume of approximately 50,000 shares, indicating moderate liquidity.
• Bid-Ask Spread: The bid-ask spread is typically around 0.10%, demonstrating relatively low trading costs.

Market Dynamics

Factors affecting QAI's market environment include:

• Market Volatility: Increased market volatility can create opportunities for the ETF's alternative investment strategies.
• Interest Rate Environment: Changing interest rates can impact the performance of certain asset classes within the ETF's portfolio.
• Economic Growth: Stronger economic growth can benefit the overall market, potentially leading to higher returns for the ETF.

Competitors

• Gabelli Global Small & Mid Cap Value ETF (GAB): Market share 0.03%
• VictoryShares Dividend Accelerator ETF (VSDA): Market share 0.02%
• VanEck Merk Hard Assets Producers ETF (GOGL): Market share 0.01%

Expense Ratio

QAI's expense ratio is 1.24%, which is considered average for actively managed ETFs.

Investment Strategy

• Strategy: The ETF employs a flexible and opportunistic approach, utilizing various alternative investment strategies such as long-short equity, event-driven, and relative value.
• Composition: QAI invests in a diverse range of assets, including equities, fixed income, currencies, and commodities. The portfolio composition can vary depending on market conditions and opportunities identified by the management team.

Key Points

• Aims for absolute returns regardless of market direction.
• Utilizes a flexible and opportunistic investment approach.
• Focuses on alternative investment strategies.
• Experienced management team with a proven track record.
• Has delivered positive absolute returns since inception.
• Moderate liquidity and trading costs.

Risks

• Market Risk: The ETF's performance is tied to the underlying assets, which can experience volatility and losses.
• Alternative Investment Risk: Strategies used by the ETF can be complex and may not always produce the desired outcomes.
• Management Risk: The ETF's success relies heavily on the management team's ability to identify and capitalize on opportunities.

Who Should Consider Investing

QAI is suitable for investors seeking:

• Absolute returns: Investors looking for positive returns regardless of market direction.
• Diversification: Investors seeking to diversify their portfolios with alternative investment strategies.
• Active Management: Investors who prefer actively managed ETFs with experienced portfolio managers.

Fundamental Rating Based on AI

Rating: 7.5/10

QAI receives a moderately high rating due to its strong performance, experienced management team, and flexible investment approach. However, its moderate market share and relatively high expense ratio limit its overall rating.

Justification:

• Financial Health: The ETF has a solid track record of generating positive returns, outperforming its benchmark index over various timeframes.
• Market Position: QAI holds a modest market share, indicating room for further growth.
• Future Prospects: The increasing demand for alternative investment strategies and the ETF's proven performance position it well for future growth.

Resources and Disclaimers

This analysis utilizes data from the following sources:

• First Trust ETF website
• Morningstar
• Bloomberg

This information is for informational purposes only and should not be considered investment advice. Please consult with a qualified financial advisor before making any investment decisions.