This is an actively managed ETF that takes both long and short positions in exchange-listed commodity futures to pursue long-term absolute returns. It gains exposure to a variety of commodity futures through a Cayman subsidiary structure.

It suits investors who want to diversify their portfolios with an alternative asset that has low correlation with stocks and bonds.

It is an ETF run with an active (actively managed) approach by First Trust.

The portfolio managers actively allocate long and short positions in commodity futures to pursue absolute returns independent of market direction. The fund invests in commodity futures through a Cayman subsidiary, and holds its remaining assets in cash-like instruments such as short-term Treasuries, which are used for margin management.

• Combining long and short positions seeks profit opportunities even when commodities are falling
• An active absolute return strategy that does not track an index

Assets under management (AUM) stand at $252.9M, and the total expense ratio is 0.98% per year.

Unlike long-only commodity ETFs, it runs short positions alongside long ones to adjust its directional exposure, which is the structural difference.

Returns are determined by commodity prices and the managers' long/short decisions, and they tend to move differently from typical index-tracking commodity ETFs. Because directional bets are reduced, volatility may also be relatively moderate.

Alternative-investment capital tends to flow in when commodity market volatility rises or when demand for diversification away from stocks and bonds grows. However, the category is small to mid-sized compared with broad commodity ETFs.

Its strength is alternative-investment exposure with low correlation to stocks and bonds, while its weaknesses are its dependence on active management and a relatively high fee.

PDBC, BCI, and CMDT in the table follow broad commodity indexes with long-only strategies, so their directional exposure structure differs from FAAR, which combines long and short positions. Outside the table, investors who want simple long commodity exposure can consider index-tracking funds such as DBC, GSG, and COMT, while those who want an absolute return alternative investment independent of market direction can consider FAAR. It is important to compare differences in management style and fees together.

Here are the points to review before investing in FAAR. Because its strategy differs from that of typical commodity ETFs, it is important to first fully understand the long/short absolute return approach, the cost structure, and its role within your portfolio.

Performance depends heavily on the managers' active judgment, and commodity futures price swings and roll costs affect returns. Even with an absolute return strategy, the possibility of loss remains.

It is worth considering for investors who want to diversify their portfolios with an alternative investment that has low correlation with stocks and bonds. If you want simple commodity exposure, index-tracking ETFs are more suitable, and if you want an active absolute return approach, FAAR is the better fit.