The Freedom 100 EM Index ETF (FRDM) offers a 'freedom-weighted' approach to emerging markets, allocating capital based on quantitative metrics for civil, political, and economic freedom.
This strategy intentionally excludes autocratic countries like China, Russia, and Saudi Arabia, which are heavily weighted in traditional market-cap indices, thereby mitigating geopolitical risk.
The FRDM ETF has demonstrated significant outperformance against both the MSCI Emerging Market Index and the S&P 500 over one, two, and three-year periods, suggesting a 'freedom premium'.
The investment thesis posits that countries with stronger rule of law, property rights, and personal freedoms provide a more stable and prosperous environment for long-term business growth and investment returns.
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Concerns Raised
High concentration of geopolitical risk in traditional market-cap weighted EM indices.
Lack of rule of law and judicial independence in autocratic countries, threatening contracts and property rights.
Unreliable or manipulated economic data published by authoritarian governments.
Arbitrary government interference in business, such as the cancellation of the Ant Group IPO.
Opportunities Identified
Capturing a 'freedom premium' by investing in freer emerging markets with stronger growth potential.
Achieving superior risk-adjusted returns by systematically avoiding countries with high geopolitical and governance risks.
Gaining diversified emerging market exposure without allocating capital to autocratic regimes.
Utilizing a quantitative, rules-based strategy for EM investing that removes emotional bias.