FAAR: The ETF That Won't Take Your Portfolio Far

We're all on the hunt for smart, efficient ways to grow our wealth and generate a steady income. The market is absolutely brimming with ETFs promising diversification, active management, and stellar returns. It's a tempting landscape, for sure. But sometimes, what looks appealing on the surface reveals some rather glaring issues upon closer inspection. Today, I want to talk about one such fund: the ActivePassive Multi-Asset Income ETF, or FAAR, as it’s known by its ticker. And frankly, if you're looking to get ahead, you might want to give this one a wide berth.

FAAR positions itself as an actively managed, multi-asset income ETF. The idea, presumably, is to offer investors a sophisticated, hands-off approach to generating income across various asset classes, with savvy managers making the key decisions. Sounds good, right? Who wouldn't want that kind of expertise working for them? However, when we dig into the actual performance and structure of FAAR, the narrative starts to unravel pretty quickly.

Let's talk numbers, because that's where the rubber truly meets the road. If an actively managed fund is truly adding value, we'd expect it to, at the very least, keep pace with or ideally outperform simpler, passively managed benchmarks. Yet, FAAR has consistently underperformed. Consider a straightforward benchmark like the iShares Core Moderate Allocation ETF (AOM) or even a basic 60/40 portfolio (60% equities, 40% bonds). For years, FAAR has lagged significantly behind these much simpler, much cheaper alternatives. It’s a tough pill to swallow when you're paying for active management that consistently delivers less than what you could achieve with minimal effort and cost.

And speaking of cost, let's address the elephant in the room: the expense ratio. FAAR charges a hefty 0.85% annually. That might not sound like much at first glance, but let me tell you, it adds up faster than you think, especially when your returns are already subpar. Every percentage point, every basis point, directly eats into your potential gains. For context, the benchmark AOM comes in at a mere 0.15%. That's a huge difference, and it directly explains a good chunk of FAAR's underperformance. It's like paying premium prices for a generic product.

Now, what exactly is FAAR investing in with all that active management? This is where it gets particularly interesting. Often, when you peek under the hood of FAAR, you'll find a collection of other, often very low-cost, plain vanilla ETFs. We're talking about popular funds from providers like Vanguard. So, you're essentially paying FAAR's active management fee to hold funds that you could very easily — and much more cheaply — buy yourself. It begs the question: what value is the 'active' part truly adding beyond rebalancing a few well-known ETFs?

Furthermore, FAAR isn't exactly a titan in the ETF world. With relatively low assets under management (AUM) and modest daily trading volumes, liquidity can be a concern. For larger investors, or even just during periods of market stress, trying to buy or sell significant amounts of FAAR shares could potentially move the market price against you. This is another practical hurdle that simpler, more liquid ETFs just don't present.

So, what's the ultimate takeaway here? If you're looking for a multi-asset income solution, or just a solid diversified portfolio, the ActivePassive Multi-Asset Income ETF (FAAR) is likely not your best bet. Its high expense ratio, consistent underperformance against simple benchmarks, and a portfolio composition that largely rehashes other low-cost ETFs make it a less-than-ideal choice. There's no secret sauce here; just a higher fee for a less effective outcome.

Instead, consider much more efficient and proven alternatives. An ETF like AOM offers broad diversification at a fraction of the cost. Or, if you're comfortable with a slightly more hands-on approach, building your own diversified portfolio with a mix of low-cost equity and bond ETFs (like a classic 60/40 or 70/30 split) will likely serve you far better in the long run. In investing, sometimes the simplest, most cost-effective solutions are truly the smartest ones. Don't let fancy labels or promises distract you from what the numbers are clearly telling us.