Perth Tolle on Investing in Emerging Markets Without Funding Dictators

The Problem with Traditional Emerging Market Investing

• 🎯 Traditional emerging market indexes are often weighted by market capitalization, leading to significant investments in autocracies like China, Russia, and Saudi Arabia.
• 💡 This approach funnels capital to authoritarian regimes, which is often not the intention of most investors.
• ⚠️ Countries like China historically held large weights (e.g., 41% of MSCI EM index during COVID), despite their political and economic policies negatively impacting investment capital.

The Freedom Index Methodology

• 🔑 Perth Tolle created the Freedom 100 EM Index (ETF symbol FRDM) to offer a diversified emerging markets allocation that screens out authoritarian regimes and dictators.
• 🧠 The index uses quantitative metrics from the Human Freedom Index by the Cato Institute and Fraser Institute, which analyze 87 variables including civil, political, and economic freedoms.
• ⚖️ Countries are weighted based on their composite freedom score; higher freedom scores result in higher index weights, while the worst offenders are excluded.
• 🚫 An initial screen for market size and liquidity narrows the universe to about 18 eligible countries before applying freedom weighting.

Company Selection and Exclusion Criteria

• 📈 Within the selected countries, the 10 largest and most liquid constituents are chosen for the index.
• 🏢 These companies are market capitalization-weighted within their country's freedom-weighted allocation.
• 🚫 State-owned enterprises are excluded to maintain the focus on economic freedom and minimize government interference in private markets.

Performance and Rationale

• 🚀 The Freedom 100 EM index ETF has managed over $2 billion and has outperformed the S&P 500 over one, two, and three years, with a 67% return in 2025 compared to the S&P 500's nearly 18%.
• 🇨🇳 China's market performance is highlighted as a cautionary tale, with its markets essentially flat or significantly underperforming the S&P 500 over 30 years due to companies prioritizing state interests over client value.
• 🇷🇺 Russia has never been included in the FRDM index, providing a hedge against geopolitical risks like the invasion of Ukraine, which caused Russian stocks to plummet.
• 🌱 The strategy focuses on countries with strong growth stories and greater freedom, believing these are the best places for future investment opportunities.

Investing in Freedom

• 💡 Investors seeking international or emerging market exposure without funding authoritarian regimes can consider funds based on political, civil, and economic freedom.
• 💬 Directing assets towards freedom-promoting countries is seen as a way to leverage privilege and power in the finance world for positive global impact.