Invest In Freedom & Beat The Market

Invest In Freedom & Beat The Market

On an extended visit to China as a recent college graduate in 2003, Houston money manager Perth Tolle of Life & Liberty Indexes came face to face with the human costs of Chinese policies—an experience that birthed the idea of her Freedom 100 Emerging Markets ETF that she would launch in 2019, an article in Forbes reveals. Eschewing any governments whose policies infringe on personal and economic freedoms, Tolle’s ETF is only down 7.5% this year compared to the MSCI Emerging Markets Index which is down 17%.

The ETF, which Tolle manages in partnership with PA-based Alpha Architect, has no investments in China—which makes up 30% of the MSCI Emerging Markets Index—or Russia. The fund has grown exponentially, from $30 million in 2021 to $200 million today. By eliminating totalitarian regimes, the Freedom ETF has sidestepped the risks that come from holding investments in those countries, such as when China slapped arbitrary penalties against its biggest tech companies. Alibaba and Tencent saw their stocks plummet in the wake of these $30 billion fines. Where China dragged down the MSCI Emerging Markets Index 2.5% last year, Tolle’s fund shot up 6.9%.

“Freer markets have more sustainable growth,” Tolles told Forbes. 21% of the fund’s portfolio is in Chilean companies, with Taiwan, South Korea, and Poland also holding large allocations. Using the Human Freedom Index scores from both the Cato and Fraser Institutes, she rebalances the fund every year, taking the top 10 or 11 emerging markets and weighting them based on those scores. Within those countries, she looks at the 10 biggest non-state-owned stocks and uses market cap to weight those. The fund focuses solely on the freedoms enjoyed in those countries and does not take ESG into consideration.

As a financial advisor, Tolle had many foreign clients from countries such as Russia, Iran and Saudi Arabia that they did not want to invest in, telling her that it would be like investing in terrorism. That sensibility gave her more motivation to create the Freedom 100 fund. When by chance she was on the same seaplane to Camp Kotok with Rob Arnott in 2016, she pitched him the idea, which he backed, the article details. The fund has a 0.49% expense fee. And although her ETF is down this year, its assets have doubled from where it ended last year, a result of the inflows that poured in after Russia invaded Ukraine, and everyone fled that market. “What Russia did opened investors’ eyes to the risk in China,” Tolle says, adding “That’s what we’re here to solve.”

Perth Tolle on Excess Returns