The First Trust Equity Market Neutral ETF is an actively managed ETF that, rather than simply tracking a specific stock index, uses US-listed stocks and related derivatives to seek market-neutral return opportunities.

It suits investors who want to reduce exposure to the direction of the equity market while adding a strategy based on the relative performance of individual stocks to a portion of their portfolio.

It is an ETF run by First Trust under an active management approach.

The fund manages both long and short exposure to US stocks and uses related derivatives in an effort to reduce its sensitivity to overall market gains or losses. Performance is shaped by stock selection, position construction, trade execution and the market environment.

• Active management that focuses on relative performance between stocks rather than market direction
• A structure that considers both direct stock holdings and the use of derivatives

Assets under management (AUM) stand at $15.8M, and the total expense ratio is 0.95% per year.

A market-neutral strategy can depend more on the relative results of long and short positions than on whether the equity market rises or falls. Before trading, it is worth checking liquidity, bid-ask spreads and any gap between net asset value and market price.

The performance of this fund is hard to explain by overall market strength or weakness alone. Performance dispersion between stocks, changes in volatility and the balance between long and short positions all affect results, and the fund may move differently from broad equity indexes.

Interest in market-neutral strategies can shift when market volatility rises or when differences between individual stocks widen. However, fund flows are tied not only to expectations for the strategy but also to trading convenience, cost burden and how well investors understand the derivatives structure, so they are difficult to attribute to a single factor.

The strategy aims to reduce exposure to market direction, but investors should also weigh the combined risks that come with active management and the use of derivatives.

Because comparable listed fund data is limited, it is better to start by examining the strategy structure than to compare this fund simply with other ETFs. Even among products that describe themselves as market neutral, the makeup of long and short exposure, the way derivatives are used, the cost structure and trading convenience can differ. When information on similar funds becomes available, it is advisable to compare prospectuses and holding structures side by side.

When considering the First Trust Equity Market Neutral ETF, do not assume that risk is low merely because of the words "market neutral" in its name. Investors should confirm in advance the management structure, derivatives exposure, trading environment and the role it would play in their portfolio.

Strategies that use derivatives and short positions are more complex than simply holding stocks, and they carry risks related to stock selection, counterparties, liquidity and valuation methods. During periods of market stress, the gap between price and net asset value can also widen.

This fund fits investors who want to reduce exposure to market direction and explore relative performance opportunities, rather than those who simply want to follow a broad equity market rally. Before adding it to a portfolio, investors should confirm that the uncertainty of active management, derivatives risk and the absence of a distribution history are consistent with their own investment goals.