Additionally, stocks are weighted by earnings quality. Companies ranked the highest in earnings quality make up 40% of the index, whereas rank B, C, D earnings quality firms receive a 20% weighting.
Consequently, the portfolio will screen out companies with aggressive accounting practices and only hold firms with high quality earnings, according to the press release.
“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,” J. Garrett Stevens, CEO of Exchange Traded Concepts, said in the press release. “We believe FLAG, which seeks to reduce the investment risk in equities, is a unique and timely ETF for investors.”
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.