Topic: How To Invest

Dear Pat: Please could you give me your opinion of the new Forensic Accounting ETF as a better way to invest in the S&P 500? It would seem sensible to select only the better performers from any index that you want to invest in. Thank you.

Article Excerpt

Forensic Accounting ETF, $30.34, symbol FLAG on Nasdaq (Shares outstanding: 250,000; Market cap: $7.6 million; www.flagetf.com), is a recently launched exchange traded fund that uses its own “five step” approach to rank each company in the S&P 500 index. The ETF’s MER is 0.85%. The Forensic Accounting ETF’s methodology looks at what the fund managers call the underlying “Earnings Quality Index,” which ranks each stock’s earnings quality on a scale from A to F. The fund arrives at this rating by analyzing each company’s financial statements to determine the extent to which their revenue and earnings appear to be overstated. It also examines whether and how much costs are understated or if cash flow quality is deteriorating. Companies ranked with the highest-quality earnings—an A rating—make up 40% of the index, while those that rank B, C and D get a 60% weighting, with each letter ranking making up 20%. The companies with an F rating, which number about 100, are dropped…