Perth Tolle, Life + Liberty Indexes – If I Was In Hong Kong Right Now, I Would Be Arrested, Definitely, For Doing This | #318

Episode Summary

Executive Summary: Perth Tolle explains how her China/U.S. background led her to create FRDM, a freedom-weighted emerging markets ETF that scores countries on personal and economic liberty rather than market cap. The discussion covers the index’s methodology, China exclusion, annual rebalance, investor reception, and how freedom can shape long-term growth, capital allocation, and risk.

Main Topics: Origin of the freedom investing thesis: Tolle links her childhood in China and the U.S., plus later travel in Hong Kong and mainland China, to her realization that political and economic freedom materially affect both society and markets. Building FRDM and getting it to market: She describes the entrepreneurial path from idea to ETF launch, including trying issuers, ultimately partnering with Wes Gray/Alpha Architect, and receiving early backing from Rob Arnott. Freedom-based index methodology: The strategy uses third-party personal and economic freedom metrics, aggregates them into a composite score, weights freer countries higher, and excludes the least free regimes. Why emerging markets and why ex-China: Tolle argues emerging markets show wider freedom dispersion than developed markets and that China’s large benchmark weight distorts traditional EM exposure and concentrates political risk. Investor response and pushback: The fund has drawn strong support from investors who want emerging-market exposure without backing repressive regimes, along with criticism—especially from Chinese commenters and skeptics of the concept. Freedom, capital allocation, and market impact: The conversation emphasizes that capital goes where it is treated well; investing in freer markets lowers the cost of capital for better-governed firms while avoiding enrichment of authoritarian actors. Future product ideas and broader applications: Possible extensions include developed markets, fixed income, and frontier markets, though Tolle says the flagship emerging-markets strategy remains the focus for now.

Key Arguments: Freedom is investable because personal and economic liberty influence transparency, fraud, currency stability, innovation, and sustainable growth. A freedom-weighted portfolio should overweight freer countries and exclude the worst offenders rather than rely on market-cap weighting. Emerging markets are especially suited to this approach because freedom levels vary dramatically and benchmarks are heavily distorted by concentrated countries like China. The strategy is objective because it relies on third-party data and composite scores rather than subjective country preferences. Investing in unfree markets can indirectly support state actors, opaque ownership structures, and governments that suppress rights. Freedom declines can happen quickly, so the index includes a momentum rule that removes countries whose freedom scores deteriorate too fast. People from freer countries tend to understand the logic immediately, while pushback is strongest from countries with weaker freedom and more restricted information flow.

Data Points: FRDM launch date: May 23, 2019 - Tolle says the ETF launched about two years before the interview. Index universe: About 26 countries - She describes the emerging markets universe used in the strategy. Current country count in index: 10 countries - Only the top-ranked free countries currently make it through. Holdings count: 100 total holdings - The ETF holds the top 10 largest, most liquid securities in each included country. Country cap per holding: 8% at rebalance - A cap is used to prevent Taiwan and South Korea from becoming bets on single megacaps like TSMC and Samsung. Freedom metrics: 76 metrics - The Human Freedom Index framework uses personal and economic freedom inputs such as speech, media, taxation, trade, and corruption. Highest country weights mentioned: Taiwan, South Korea, Chile - These were cited as current high-weight freer countries. Excluded countries mentioned: China, Russia, Saudi Arabia, Egypt, Turkey - These countries receive negative weights or are excluded as least free offenders. Rebalance frequency: Once per year - Annual updates generally occur in January when the data is available. January rebalance turnover example: 2 additions and 2 drops - She cites one recent rebalance with Brazil and Malaysia added, Thailand and India removed. China weight in many EM benchmarks: About 40% - Used to illustrate how traditional EM funds are concentrated in China. U.S. advisor allocation to EM: About 3% - Meb notes this as a common low allocation among U.S. advisors. Cropland lost to urbanization: Approximately 4.8 acres per minute - This appears in the AcreTrader sponsor message about farmland scarcity. Google stock investment: 1 token share - Tolle recalls buying a single Google share early in her career and later donating it after appreciation. Fund assets: About $50 million - Meb notes the fund’s early success over roughly two years.

Pivotal Quotes: "freedom is the most important innovation here" — Perth Tolle: Potential investors told her the strategy should focus only on freedom rather than adding extra factors. "capital goes where it's welcome and where it's well treated" — Perth Tolle: She explains why freer countries tend to create better conditions for wealth creation and market efficiency. "we're not excluding China arbitrarily. It's just freedom weighting" — Perth Tolle: She addresses criticism that the fund is simply making an anti-China bet.

Implications: The conversation frames freedom as a durable investment factor and a values-based screen that can reshape EM exposure, reduce hidden geopolitical risk, and possibly channel capital toward better-governed economies.