An approach that many investors once dismissed as idealistic is now delivering hard-to-ignore results. For years, the conventional wisdom in emerging-market investing held that size was what mattered: allocate to the biggest markets, capture the most growth, and accept the political risk as a necessary cost of doing business. A growing body of evidence is now challenging that assumption, and investors who ignored it are paying a price.
One of the clearest examples is the Freedom 100 Emerging Markets ETF. Launched in 2019, the ETF was built on the idea that political and economic freedom are not just ethical considerations; they may also shape long-term investment outcomes. Its creator, Perth Tolle, calls the concept “addition by subtraction.” By excluding authoritarian regimes and reallocating capital toward freer economies, the strategy aims to reshape emerging-market exposure around institutional strength rather than sheer market size. Skeptics called it a niche bet. The numbers are telling a different story.
The Problem With Traditional EM Benchmarks
Most emerging-market ETFs track indices such as the MSCI Emerging Markets Index. These benchmarks are weighted primarily by market capitalization, meaning the largest stock markets dominate the index regardless of governance quality.
In practice, this structure leads to significant concentration in a few markets and exposes investors to countries where state influence over corporations can be substantial. Regulatory surprises, capital controls, or sudden policy shifts can quickly change the investment landscape. While large markets may offer growth potential, they do not always offer the strongest institutional protections for outside investors. For a long time, most investors accepted these risks as the price of admission. Many are now questioning whether they ever needed to.
The Methodology: Freedom as a Filter
FRDM takes a different approach. Instead of weighting countries by size alone, the ETF tracks the Life + Liberty Freedom 100 Emerging Markets Index, which ranks countries according to economic and personal freedom metrics derived from the Human Freedom Index.
Countries scoring below a defined threshold, such as China or Russia, are excluded entirely. The capital that would normally flow to those markets is redirected to countries that rank higher on governance, property rights, rule of law, and civil liberties.
This is not simply a passive exclusion. Removing a market like China, which can represent 30% or more of a traditional emerging-market index, creates significant capital that must be redeployed elsewhere. The result is a portfolio tilted toward economies such as Taiwan, South Korea, Chile, and Poland, where institutional frameworks are generally stronger and policy environments more predictable.
Fund Overview
(As of March 06, 2026)
Can Freedom-Weighted Investing Deliver Better Returns?
The track record no longer leaves much room for doubt. Since launch, FRDM has significantly outperformed the diversified emerging-markets category. In 2023, the fund returned 22.81% against 12.32% for the category. The divergence widened sharply in 2025, when FRDM delivered 61.29%, roughly double the benchmark’s 30.55%.
As of early 2026, FRDM recorded a 1-year return of 87.02% versus 48.05% for the EM category, 32.26% over three months versus 17.35%, and 22.33% year-to-date versus 14.38%.
Annual Returns: FRDM vs Emerging Markets Category
Why Governance Matters
The premise behind the strategy aligns with a growing body of research examining the link between institutional quality and economic performance. Numerous academic studies have explored the relationship between economic freedom, governance standards, and economic growth. Many find that countries with stronger legal systems, clearer property rights, and more transparent regulatory frameworks tend to produce more stable economic outcomes.
For investors, those institutional factors translate directly into equity returns. Markets with predictable rules and strong shareholder protections generally offer lower political risk and fewer regulatory shocks. What was once treated as a secondary consideration is increasingly looking like the primary one.
A Different Emerging-Market Map
Because the methodology excludes authoritarian markets, the country composition of the portfolio looks very different from traditional benchmarks.
Top Country Allocations (FRDM)
(Source: Freedometfs)
Instead of concentrating in the largest markets, the portfolio tilts toward economies with stronger governance structures and open capital systems. This shift fundamentally changes the risk profile of emerging-market exposure.
Bottomline
Investors who once dismissed governance-based screening as idealistic are increasingly being forced to reconsider. The rise of alternative strategies from ex-China ETFs to freedom-screened portfolios reflects a market that is finally pricing institutional risk more seriously.
FRDM offers a rigorous, rules-based framework that aligns governance screening with demonstrably superior risk-adjusted returns. The track record now spans six years and multiple market cycles. The lesson is a simple one: sometimes the best way to improve a portfolio is to remove the risks that matter most, and the investors who bet against that idea are still catching up.
