Masters in Business• Mar 25, 2026• 15:09Interview

At The Money: Investing in Freedom | Masters in Business

From Masters in Business

Perth Toll•Founder, Life and Liberty Indexes

Executive Summary

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.

Key Themes

Freedom-Weighted Investing vs. Market-Cap Weighting

The core theme is the critique of traditional market-cap weighted emerging market indices, which concentrate investment in large, autocratic states like China. The alternative presented is a 'freedom-weighted' strategy that allocates capital to countries with higher scores on civil, political, and economic freedom metrics.

This approach fundamentally changes portfolio construction for emerging markets, aiming to reduce exposure to geopolitical risks and capture a potential 'freedom premium' from more stable, growth-oriented economies.

The Interconnection of Freedoms and Economic Growth

The discussion argues that civil, political, and economic freedoms are inseparable and mutually reinforcing, like 'parts of an automobile'. Factors like an independent judiciary, rule of law, and freedom of the press are presented as essential prerequisites for a stable and transparent business environment.

This holistic view suggests that investors should look beyond purely economic data, as the absence of personal and political freedoms creates unpriced risks, such as arbitrary government action (e.g., Jack Ma) and unreliable data.

Quantifying and Mitigating Geopolitical Risk

The strategy uses a quantitative, data-driven approach to navigate the complex geopolitical landscape of emerging markets. By relying on 87 distinct variables from third-party sources like the Cato and Fraser Institutes, the index systematically screens out countries that pose a high risk to investors due to authoritarian governance.

This provides a systematic framework for risk management, moving beyond subjective analysis to create a portfolio that is structurally insulated from the whims of dictators and autocratic regimes.

Data Integrity in Investment Analysis

A key concern raised is the unreliability of data from autocratic nations, which may cease publishing unfavorable statistics or manipulate official figures. The importance of using independent, non-governmental data sources is highlighted, referencing the World Bank's 'Doing Business' index scandal as a cautionary tale.

For investors, the integrity of underlying data is paramount. This theme underscores the critical need for due diligence on data sources, as flawed inputs can lead to flawed investment decisions, especially in opaque markets.

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Topics

Emerging Markets ETF Freedom-Weighted Index Geopolitical Risk Risk Management Investment Strategy China Russia Autocracy Rule of Law ESG Alpha Generation FRDM ETF Cato Institute Fraser Institute

Processed Apr 6, 2026 yt-dlp + mlx-whisper + Gemini