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Nov. 25, 2022

10: Perth Tolle on Freedom-Weighted Emerging Markets

10: Perth Tolle on Freedom-Weighted Emerging Markets

Do you want to invest based on your values? Today on Investing the Templeton Way, my guest Perth Tolle explains freedom weighting. Perth founded the Life + Liberty Indexes and created the Freedom 100 Emerging Markets ETF (ticker FRDM). She explains the metrics used to classify some emerging markets as freer than others, and the correlation between freedom and economic success.

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“Freedoms are like parts of an automobile, that you can't have a steering wheel without a transmission, the car still won't run. So you have to have both personal and economic freedoms.” -Perth Tolle (6:23) 

What is Freedom Weighting?

Living in both China and the US gave Perth a unique perspective on how personal and economic freedoms are connected. There is also a connection between how countries treat their citizens and their economies. An example is when China instituted a one-child maximum rule for 30 years—this rule had a profound negative impact on the country's economy, which eventually led China to expand to a two-child maximum, and now a three-child maximum. 

“We saw personal freedom deteriorating in China in the recent past. And then we saw the crackdown on tech companies, on entrepreneurs, on private business in general, and just the heavy-handedness from which the leadership is now kind of cracking down on markets. And so this acted as a leading indicator for those economic freedom issues.” -Perth Tolle (6:46)

A country that is more free experiences more sustainable growth, as opposed to growth that is debt-driven or state-mandated. Freer markets have more transparent accounting and ownership structures. They also recover from drawdowns faster because people are more incentivized to innovate and solve problems on their own. 

An example of this is the US response at the beginning of COVID. At first, everyone was told not to buy masks because there weren’t enough for healthcare workers. However, individuals started selling masks on Etsy, and brands like Brooks Brothers started making masks, and the shortage went away because of creative solutions.

What is the Freedom-Weighted Emerging Markets Equity Index (FRDM index)

The freedom-weighted emerging markets equity index (FRDM index) ranks countries based on their level of citizen freedoms and liberties. The FRDM index is sponsored by Life + Liberty Indexes, which Perth founded. The index gives investors an opportunity to align their values with their investments. 

“I had a Russian client when I was at Fidelity, who told me I don't want to invest in Russia, because it is like funding terrorism. And so I really created this for investors like him who want that emerging markets exposure, without funding autocracies, and also giving a higher weight to the Freer markets.” -Perth Tolle (14:08)

The FRDM index applies freedom weighting to 18 emerging markets, which are markets in developing nations that are transitioning into developed economies as they grow. From that pool, the current top freest countries include Taiwan, South Korea, Chile, and Poland. The freedom metrics are produced by Cato and Fraser Institute because they provide the most transparent methodology and they don’t take government grants from any country.


Cato and Fraser look at 79 different inputs to produce their metrics, and they fall into three categories: civil freedoms, political freedoms, and economic freedoms.


Civil freedoms include terrorism, trafficking, torture, and women’s rights. Political freedoms include media expression, freedom of speech, criminal procedure, etc. Economic freedoms include taxation, rule of law, private property rights, etc. Each variable holds an equal weight. 

Life + Liberty uses the FRDM index to buy the top ten largest, most liquid securities from each included country, excluding any enterprises that are state-owned. The strategy has helped Life + Liberty more than double its assets in 2022. Most of that growth took place after the Ukraine invasion in March when investors opened their eyes to the risk of autocracies. 

“I hate that it had to take an extreme event for investors to see the tail risk in investing in autocracies, but I don't think it was just Russia. I think China and their very heavy-handed actions also contributed to this.” -Perth Tolle (38:38)

Given that Taiwan is currently at the top of the index, Perth is watching the conflict between China and Taiwan very closely. 

The goal of the FRDM index is to impact how people look at investing. Perth wants more investors to realize that aligning their investments with their values also provides the most benefit for them.

Changing the Conversation Among Investors

While Perth thinks that the impact of her work may be a tall order from spreading freedom around the world, she does believe that it has changed the conversation among investors. To her, creating this index was a form of expression, allowing herself and others to express their preferences in investing in emerging markets.

Meet Perth Tolle

Perth Tolle is the Founder of Life + Liberty Indexes, an index provider and sponsor of the Freedom 100 Emerging Markets ETF. Prior to this, she was a private wealth advisor at Fidelity Investments, where she managed key relationships in Los Angeles and Houston. Tolle has also lived and worked in Beijing and Hong Kong, where she explored the connection between freedom and markets. Through her China experience, she gained a high level of conviction regarding the impact of sound governance, individual freedoms, and rule of law on economic growth and innovation.

Mentioned in this Episode:

Freedom ETF: freedometfs.com/frdm

Life + Liberty: lifeandlibertyindexes.com/

MSCI Market Classifications: msci.com/our-solutions/indexes/market-classification

Defund Dictators: DefundDictators.org

Templeton Letter

Cato + Fraser Institute Human Freedom Index: cato.org/human-freedom-index/2021

The information presented in this podcast or available on the website is not intended as and shall not be construed as financial advice. This podcast is produced for entertainment value. Investing is inherently risky. And I encourage you to seek financial advice from a professional who is aware of the facts and circumstances of your individual situation.