FLAG is a long-only ETF strategy based on an index derived from so-called forensic accounting principles excluding companies with what the firms detect as “red flags” in their financial statements, aiming in this way to minimize risk.

FLAG’s portfolio tracks the Del Vecchio Earnings Quality Index - created by forensic accountant John Del Vecchio, a principal of IDS - which ranks the top 500 US large-cap stocks from A to F and eliminates F-rated stocks.

“What’s left is a portfolio of 400 equally weighted stocks that is over-weighted to include the 400 potentially best performers of the 500,” the firm said.

The Del Vecchio Quality of Earnings Index focuses on areas such as revenue recognition practices, treatment of inventory, profit margins, material change to operating expenses or income and financial ratio adjustment. The index, and therefore the FLAG portfolio, is reconstituted once a month.

Exchange Traded Concepts will serve as investment advisor to FLAG. Index Deletion Strategies and Index Management Solutions will serve as sub-advisors.

Index Deletion Strategies is a research firm focused on the investment merits of forensic accounting and financial statement analysis. ETC describes itself as a portal to launch custom ETFs through a turnkey solution.