At The Money: Investing in Freedom
Masters in Business Podcast Recap
Published:
Guests: Perth Tolle
What Happened
Barry Ritholtz discusses the geopolitical risks of investing in countries such as China, Russia, Saudi Arabia, Egypt, and Turkey, and introduces Perth Tolle, founder of Life and Liberty Indexes. Tolle explains the Freedom 100 Emerging Market ETF (FRDM), which uses freedom-weighted metrics instead of market capitalization to allocate investments, focusing on civil, political, and economic freedoms.
Perth Tolle outlines the Freedom Index, emphasizing that it includes civil, political, and economic freedoms to create a composite country score. The index utilizes data from the Cato Institute and the Fraser Institute, both independent entities, to determine country weights. Tolle stresses that the independence of these institutes is crucial to ensuring unbiased data.
The episode highlights the importance of civil freedoms such as safety from violence and organized crime for conducting business. Tolle argues that without personal safety, business activities cannot thrive, underscoring the necessity of rights to life and liberty.
Political freedoms, including freedom of the press and an independent judiciary, are essential for accurate data verification and contract enforcement, according to Tolle. She cites examples from countries lacking these freedoms, where businesses face significant risks, such as the disappearance of entrepreneurs in China.
Economic freedoms are discussed as critical for business operations, with Tolle noting that many emerging markets lack these freedoms. She points out that freedoms like property rights and free trade are often taken for granted in developed economies but are vital for emerging market investments.
Tolle states that the Freedom 100 EM Index is primarily used by clients seeking long-term returns based on the belief that freer countries will outperform. The fund's recent performance has demonstrated this potential, leading many to adopt it as their core strategy for emerging market exposure.
Key Insights
- Perth Tolle's Freedom 100 Emerging Market ETF uses a unique freedom-weighted approach, focusing on civil, political, and economic metrics rather than market capitalization. This method aims to allocate investments to the freest countries, avoiding autocracies with high market cap concentration.
- The Freedom Index incorporates data from the Cato Institute and the Fraser Institute, ensuring that country evaluations are free from government influence. This independence is crucial in avoiding bias and maintaining the integrity of the freedom metrics used.
- Civil freedoms, such as safety from violence, are foundational for business operations. Perth Tolle emphasizes that without personal security, business activities cannot flourish, highlighting the rights to life and liberty as critical for economic success.
- Economic freedoms like property rights, sound monetary policy, and free trade are essential in emerging markets. Tolle notes that these freedoms are often overlooked in developed countries but are vital for assessing investment risks and opportunities in less stable regions.