Accounts

Exchange Traded Concepts brings Forensic Accounting ETF to market

Exchange Traded Concepts’ The Forensic Accounting ETF (FLAG) has become the newest exchange-traded fund to begin trading through the firm's accelerated, low-cost, private-label ETF platform.

The DelVecchio Earnings Quality Index was developed by Index Deletion Strategies (IDS) to avoid companies with aggressive accounting practices and invest in firms with high quality earnings, becoming the first exchange-traded fund to take advantage of company specific financial statement analysis.

"FLAG seeks to track an index of stocks based on the science of forensic accounting. The proprietary accounting analysis at the individual stock level identifies financial weakness – so called red flags – and financial strength," says J Garrett Stevens, chief executive of Exchange Traded Concepts. "We believe FLAG, which seeks to reduce the investment risk in equities, is a unique and timely ETF for investors."

The DelVecchio Earnings Quality Index tracked by FLAG is a rules-based index that applies proprietary forensic accounting analysis to a universe of US large capitalisation stocks. The analysis focuses on areas including revenue recognition practices, inventory treatment, profit margins, material changes to operating expenses or income and financial ratio adjustments. At completion, the analysis assigns a letter grade to all companies in the large cap universe. Companies graded lowest are not included in the index, while the remaining firms make up the index. The constituents of the index are weighted based off a methodology that favours higher graded companies.

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