First Trust Launches Long-Short Commodities ETF

First Trust Launches Long-Short Commodities ETFThe First Trust Global Tactical Strategy ETF (NASDAQ:FTGC) launched in October 2013, and the time since launching has been tough for commodities. Case in point: The fund’s one-year returns through April 30, 2016 stood at -14.69%, but that was still good enough to rank in the top 18% of its Morningstar category.

Commodities turned the corner in 2016, and as a result, FTGC has posted gains of 4.97% in the first four months of the year. While these gains are less than some of the fund’s competitors in the commodities space, FTGC’s relatively low allocation to the energy sector kept it out of the dog house as oil prices plunged beginning in 2015.

Nevertheless, First Trust’s new commodities ETF seeks to avoid the volatility inherent in long-only commodity investing by adopting a long/short approach. The First Trust Alternative Absolute Return Strategy ETF (NASDAQ:FAAR), which DailyAlts reviewed in February, finally launched on March 24 of this year.

Strategy & Objective

The new fund pursues an absolute return strategy, which means it takes both long and short positions in pursuit of positive returns, irrespective of benchmarks, while also aiming for lower volatility than traditional funds. Up to 25% of the fund’s assets are invested in a Cayman Islands subsidiary that invests in commodity-based futures contracts, while the remainder of the fund’s assets are held in cash, cash equivalents, and short-term debt.

The fund’s prospectus says its investment in the subsidiary could have high turnover due to the rolling of contracts and rebalancing of its commodity sector exposure.

Comparison to Similar Funds reports that WisdomTree Managed Futures Strategy Fund (NYSEARCA:WDTI) is the largest absolute-return ETF on the market, with $187 million in assets under management (“AUM”). Unlike First Trust’s new fund, though, WDTI provides exposure to commodities, currencies and U.S. Treasury futures, while FAAR is focused solely on commodities.

First Trust’s own First Trust Morningstar Managed Futures Strategy Fund (NYSEARCA:FMF) is another long/short futures fund, but like WDTI, its exposures are wider than FAAR’s commodity focus, encompassing currency and equity indices in addition to commodities. FMF launched in 2013, but only has $7.21 million AUM, according to Morningstar.

FAAR, like FMF, has a net-expense ratio of 0.95%, while WDTI has a net expense ratio of 0.65%.

For more information, view the fund’s prospectus.

Past performance does not necessarily predict future results.
Jason Seagraves contributed to this article.

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