At The Money: Investing in Freedom

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1:57I want to break free. I want to break free. I'm Barry Ritholtz, and on today's edition of At The Money, we're going to discuss how to avoid those countries that are geopolitically dangerous to your wealth. China, Russia, Saudi Arabia, Egypt, and Turkey. To help us unpack all of this and what it means for your portfolio, Let's bring in Perth Toll. She's the founder of Life and Liberty Indexes and creator of the Freedom 100 Emerging Market ETF, stock symbol FRDM. She was named one of 10 people to watch by Wealth Management Magazine, one of 100 people transforming business by Business Insider. Her ETF, the Freedom 100 EM Index, manages over$2 billion and has beaten the S &P 500 over one, two, and three years.

2:54In 2025, FRDM was up 67%. That's double the MSCI Emerging Market Index, which was up about 33%, 34%, which itself was double the S &P 500, which was up 17.9%. So Perth, before we get into the details, remind us about the Freedom Index. What gets excluded and why? Yeah, so the Freedom Index is basically a freedom-weighted emerging markets strategy that uses third-party quantitative freedom metrics to weight countries instead of using market cap. So with market capitalization-weighted indices, you get a high weighting to autocracies, and some of the world's biggest autocracies have a very concentrated weight.

3:41With freedom weighting, Instead, you get a higher concentration to the freest countries in the world, because we believe that's where we're going to find the best growth stories going forward. Makes sense. So I know the index looks at three broad categories to screen out different countries, civil, political and economic concerns. Explain how you ended up on those three items. Yeah, so we felt it was extremely important to encompass all different kinds of freedoms, not just personal freedoms, not just economic freedoms, because all freedoms work together. One of the authors of our, you know, the data set that we use has said that freedoms work together like parts of an automobile.

4:27You can't have the steering wheel without the transmission. The car still won't run. So you have to have both personal freedoms, like civil and political freedoms, encompassing things like terrorism, torture, trafficking, women's rights, freedom of speech, media expression, assembly of religion, civil procedure, criminal procedure, judiciary independence, and things like that. And also the economic freedoms that we're all more familiar with as investors, things like taxation, rule of law, private property rights, business regulations, soundness of monetary policy, and freedom to trade internationally.

5:00So all of these things added together give us a composite country score from our data think tanks, the Cato Institute and the Fraser Institute. And we use that composite score on the country level to derive our country weights. So I want to dig deeper into those three broad subjects. But before we do, you know, there's been a lot of pushback on ESG type investing and, you know, morality based investing. When I hear names like the Cato Institute and the Fraser Institute, these are very conservative entities, not the sort of groups you think of as, oh, this is just another woke way of moving money around.

5:42investing in freedom really is a fairly well-defined way to screen out risk, bad players and increased risk, isn't it? Yeah. So the Cato Institute and the Frazier Institute, I don't know what you mean by very conservative. However, these are, for example, the Frazier Institute is known for their economic freedom data. The Cato Institute more so for the personal freedom side of it, more political freedoms and civil freedoms. And these are both entities that take no government grants. So they don't take any grants from, you know, even the US or the Canadian governments where they're based. That was important to me because we all know the World Bank debacle a few years ago, where because they took money from China and they, you know, under Chinese coercion, changed some of their scoring, they had to actually scrap a very useful index, which we used, which was the Doing Business Index.

6:43That is something that the community is still trying to replace. And so this is something that was important to me, that they were independent from government coercion. The other thing about them is one thing that I noticed working with them all these years, and by the way, we're completely independent from each other. So I have no influence into their country scoring. They have no influence into our country allocations. and it's completely separate. But having had permission to use their data set, having had some insight into how they work, one thing that really impressed me was going into 2016, going into kind of 2024, a lot of the more conservative so-called voices were kind of going along with the political environment, whereas these guys never did.

7:36And they called out the dangers of what they saw in the American political situation from pre-2016. And so this is a group that is extremely, in my opinion, unbiased toward any government due to the fact, partly due to the fact, I'm sure, that they are completely privately funded. and I've seen their kind of third-party independence firsthand through this work, this data set, which is completely third-party for them. And also we're using their third-party measurements. So there's two layers of third-party objectivity in there. So I've been really impressed with the way that they've been very unbiased and very neutral and very, you know, I would say even centrist when it comes to kind of looking at the government situation in both the political situation in both the U.S.

8:31and outside of the U.S. and their commentary there. So we'll talk a little bit about the U.S. later. I want to dive into these three broad subject matters that drive the index, some of which seem a little obvious, some of which not so much. Let's start with the civil freedoms where you're looking at violent conflict, organized crime, disappearance, detainments, torture, terrorism, all those things sound like they're not related to economics, but also seem to create a terrible environment to do business in. Yeah. I mean, if you can't walk down the street without being concerned about being shot, then you can't really be doing business.

9:15So, and that's the idea there. So, So if you want to use a kind of a more colloquial way of looking at it, it's the rights to life, the rights to liberty and the rights to property. So if you don't have life, we don't have anything else. So that is the basis of all the other freedoms, actually. So the rights to life, which I'm putting in the civil freedoms category. And now let's talk about political freedoms. Some of these make a whole lot more sense. rule of law, due process, independent judiciary, multiple political parties, not single party rule, freedom of the press, freedom of expression.

9:56How do all of these things translate into better investment returns? Yeah, so I'm going to focus on freedom of the press and expression for a moment here. And without freedom of press or freedom of expression, there's no independent verification for where any data, whether it comes from governments or whether it comes from companies, whether any of that data is accurate or complete. So you see in some of these autocratic countries, they're not putting out data anymore. They're not publishing some of their economic data because they don't want that third party scrutiny from other countries and their own countries, they've already quashed it.

10:39So without third party verification of data, which is what investors use to measure the impact of their investments, there's no way to actually measure the true impact of your investments or whether your analysis of the investments is even correct. Let's stay within political freedoms and talk about the rule of law and an independent judiciary. given the sanctity of contracts and how important it is to manage that, how significant is an independent judiciary to, to the sort of index? Yeah. So all the variables, there's 87 variables that go into the country level composite score and independent judiciary is a one of those.

11:28And it's just as important as all the others. Like I said, you know, all the, all the freedoms work together like parts of an automobile. I would say that, you know, it is of utmost importance, especially in business, because if you don't know if your contracts are going to be upheld, then how do you even enter into contractual agreements? How do you even start that business relationship? So that is extremely important. And also on the, you know, on the, on the kind of more extreme level of that in emerging markets where there is no independent judiciary, where there is no kind of rule of law at play.

12:09Anybody can be arrested, disappeared, or detained for any political reason that has nothing to do with your actual business. So We saw this when Jack Ma disappeared, again, using China as a prime example, because he said something the government didn't like at a conference. And then his, you know, IPOs got scrapped and things like that. I think it's quieting down now, but many other tech entrepreneurs have disappeared since then. So in countries without rule of law, without judicial independence and due process, you know, in China, 99 % of offenders are convicted. That's a pretty substantial conviction rate, isn't it?

12:53Man, they must have some great prosecutors over there. So, yeah, that's kind of like very basic fundamental things that you need in order to conduct both life and business that I think most of Wall Street overlooks. So let's talk about the third leg of the stool, economic freedoms. These include property rights, sound monetary policy, independent central bank, free trade, business credit and labor regulations, and then the degree of government interference in private markets. All of these are obviously so significant to operating a business and investing in publicly traded companies. Tell us about economic freedoms in the emerging market world.

13:46Yeah, I think economic freedoms of all the freedoms get kind of a bad rap because, you know, capitalism has its critics. But if you don't have the freedom to conduct business, if you don't have the freedom to, you know, use your own resources as you see fit to to contribute to the world, then you don't really have freedom. If the government tells you what your occupation is to be or whether you can sell fruit on the street like we saw in the Arab Spring, you know, whether you can provide a living for your family. If you're dependent on the government to give you that fundamental right, then you're not really free.

14:30So without economic freedom, you have no freedom. And then as far as all the other things you mentioned in the economic freedom data set, the private property rights, the free trade, soundness of monetary policy, all of those things are things that I think Wall Street has traditionally taken for granted because we usually work in countries that have all of these things already. So and that's how we can be kind of myopic to the freedom premium in emerging markets, because in emerging markets, these things cannot be taken for granted because not all of the emerging markets have them. So how do you really think about the Freedom Index?

15:12Is it a value based fund? Is it a risk management tool? Or is this simply a pure return seeking strategy? 95 plus percent of our clients, I would say, are using it as a purely, you know, freedom premium. We believe that freedom, freer countries will outperform in the long run type of strategy. We do have some investors who came in in the early days when ESG was a big thing and they have these ESG portfolios. But I think that's that's going away a little bit. So most of our clients do use this as a, you know, we believe it will outperform type of strategy. And of course, you know, now after the outperformance that we've had in the out of sample in the actual live performance of the fund, I think most people are using it in that manner as their core emerging markets strategy.

16:07So to wrap up, hey, if you're a U.S. or Canadian-based investor and you're interested in getting exposure to emerging markets via an ETF and you don't want to funnel money to autocrats and dictators and you want to invest in the freest countries because it's a value-based decision, it's a risk management decision, or it simply has demonstrated over the past few years to be a return-seeking strategy, then take a look at the Freedom 100 EM Index, ETF symbol FRDM. I'm Barry Rickaltz. You're listening to Bloomberg's At The Money.

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