Exchange Traded Concepts, an exchange traded fund service facilitator, has launched a “forensic accounting” fund that selects stocks based on earnings quality.

On Thursday, the Forensic Accounting ETF (NYSEArca: FLAG) began trading. John Del Vecchio, CFA, an Index principal and forensic accountant, is behind the Del Vecchio Earnings Quality Index, which was created for the new ETF. FLAG has a 0.85% expense ratio.

Del Vecchio is a co-portfolio manager at AdvisorShares Active Bear ETF (NYSEArca: HDGE). [Short Bets Pay Off for Bear ETF]

The new ETF will be passively managed, but it will follow the new growing class of rules-based or “intelligent” indexing strategies that mimic actively managed styles.

The Del Vecchio Earnings Quality Index assigns 500 large-cap stocks a grade of A through F based on Del Vecchio’s “earnings quality” methodology. The index looks for aggressive revenue recognition, inventory issues, reserve concerns, large changes in operation expenses, large changes in operation income and tax issues. The index would then exclude F ranked stocks, instead of shorting them. [First ‘Forensic Accounting’ ETF Planned]

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