With much of the daily market chatter revolving around either Fed policy or EU actions lately, something that investors may be sleeping on during the early pre-summer doldrums is the upcoming earnings season.
The top components in the S&P 500, AAPL, XOM, and MSFT, are slated to report earnings during the week of 7/24-7/31, so still several weeks away, but with trading volumes generally slowing amid multiyear lows in the VIX, it is almost hard to believe that we will never pick up from these low levels.
Perhaps the corporate earnings season will be the impetus in several weeks, and thus we would like to highlight an earnings focused ETF that is currently trading at an all-time high since inception. FLAG (The Forensic Accounting ETF, Expense Ratio 0.85%) debuted in January of 2013, and follows an index called the Del Vecchio Earnings Quality Index which according to fund literature “uses financial statement analysis in an attempt to avoid companies with aggressive revenue recognition while investing in companies that have high earnings quality.”
If this fund sounds unique to the ETF space in concept, that is because it is. It resides broadly in the “Large Cap Value Equity” space, so appropriate benchmarks are of course the S&P 500 Value Index which it is handily outpacing year to date. Fund literature states that after the financials are examined for each company, the associated company’s stock receives an “overall grade of ‘A-F’” and the companies that receive an F rating are avoided entirely.
The index itself is composed of the names remaining after the “F” names are cut, where “A” rated companies receive 40% portfolio weightings, with 20% being allocated to B, 20% to C, and 20% to D ranked names accordingly rounding out the portfolio.
We see current top holdings of the fund as SYMC, COP, THC, CHK, and DVN, with a noticeable leaning toward Energy names here at least in the top few holdings of the fund.
From a sector standpoint however, the highest weighting is allocated to Financial Services (15.38%) followed by Consumer Discretionary (15.1%), Industrials (13.87%), and Energy (10.68%). Being a newer fund it is still quite small in terms of assets under management ($12.6 million) and daily trading volume levels, however it’s an interesting fund to watch going into the next and subsequent corporate earnings
Forensic Accounting ETF
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