How FRDM's Freedom-Focused Strategy Outperformed EM by 5X
The Freedom Investing Edge in Emerging Markets
Imagine investing in emerging markets while systematically avoiding geopolitical time bombs like China and Russia—and still crushing the benchmark by over 80 percentage points. That’s exactly what Perth Tolle’s FRDM ETF achieved with a 103% 5-year return versus EM’s 20%, transforming a contrarian thesis into a $3B phenomenon. After analyzing her latest Trillions podcast appearance, I believe this outperformance stems from a rigorously backtested insight: free societies create compound growth. Let’s dissect why this strategy resonates amid today’s authoritarian backsliding.
The Freedom Framework: Objective Metrics Over Gut Feeling
FRDM’s edge starts with its third-party indexing methodology—a deliberate firewall against subjective bias. The fund uses composite scores from the Cato Institute and Fraser Institute, equally weighting 87 freedom variables across economic, personal, and civil liberties. This includes:
- Economic freedom (tariff burdens, property rights)
- Personal freedom (women’s rights, media independence)
- Civil liberties (rule of law, freedom of assembly)
Notably, the index methodology remains unchanged since 2017, proving its robustness. Countries are screened for market liquidity first, then ranked by freedom scores. The result? Automatic exclusion of low-freedom, high-risk markets like China (26M missing women under One-Child Policy) and Saudi Arabia (restricted women’s rights), while overweighting nations like:
- Poland and Chile (<1% weight in traditional EM indices)
- South Korea and Taiwan (strong institutions jailing corrupt leaders)
According to Cato’s 2023 report, these markets averaged 30% higher GDP growth per capita than authoritarian peers over the past decade—a gap widening with migration trends (e.g., Ukrainian talent influx to Poland).
Country Selection: The 83% Performance Catalyst
Perth credits 83-84% of FRDM’s outperformance to country selection—a dual effect of exclusion and strategic overweighting. Consider this comparison:
| Factor | Traditional EM Index | FRDM’s Approach |
|---|---|---|
| China Exposure | 25-30% | 0% |
| Russia (Pre-War) | 3-5% | 0% |
| Poland/Chile Weight | <1% combined | 15-20% combined |
| Key Performance Driver | Commodity prices | Institutional strength |
The avoidance of China and Russia alone dodged catastrophic drawdowns. But the real accelerator was capturing growth in "forgotten" markets:
- Chile’s lithium boom fueled by transparent mining laws
- Poland’s tech surge after EU talent migration
- Taiwan’s semiconductor dominance underpinned by IP protections
As Tolle noted, "These aren’t tiny frontier markets—they’re investible economies ignored by cap-weighted indices."
Beyond EM: Where Freedom Investing Goes Next
While FRDM focuses on emerging markets, Tolle sees potential in developed markets facing freedom erosion. The U.S. fell to #15 in Cato’s 2023 rankings due to:
- Growing trade protectionism (tariffs)
- Government intervention in private markets
Yet investors shouldn’t panic. As Tolle clarifies: "A 5-point freedom drop in the U.S. isn’t comparable to disappearing journalists in Saudi Arabia." She’s exploring:
- Developed Markets Freedom ETF: Screening for DMs with improving institutional checks
- "Freedom Migration" Plays: Colombia (Venezuelan entrepreneurs) and Ireland (UK tech exodus)
The biggest opportunity? India—if it reduces trade barriers. Its population boom could ignite growth if matched with policy reforms.
Your Freedom Investing Toolkit
Immediate Action Checklist:
- Audit EM exposure: Screen for China/Russia/Saudi weightings
- Compare freedom scores: Use Fraser Institute’s free country rankings
- Rebalance quarterly: Freedom shifts require vigilance (e.g., India’s entry/exit)
Strategic Resources:
- "Why Nations Fail" by Daron Acemoglu (foundational text on institutions)
- Cato Human Freedom Index (interactive dataset for DIY analysis)
- Vanguard FTSE Emerging Markets ETF (VWO) (benchmark for relative performance)
Final Thought: Freedom Compounds
FRDM’s 103% returns underscore a vital lesson: Societal freedom isn’t an ESG buzzword—it’s an alpha generator. As Tolle told Trillions, "This isn’t a trade; it’s an investment." Yet even she warns: "Screen our periods of underperformance before buying."
When rebalancing your portfolio, which freedom metric surprises you most? Share your due diligence process below!
