F-R-E-E-D-O-M

And what's interesting about Perth is I've been bumping into her this whole time, and she's just had an index and a dream for a couple of years. And this is always one of our favorite things about T t F. And yes, there's a Silicon Valley element to it all, and Perth, to me embodies the Silicon Valley element and the indie world as I call it. And finally her E t F is coming to light. So it's called the Freedom one hundred Emerging Markets TTF. It's basically a

freedom weighted and filtered version of the Emerging Markets. It's kind of an easy E s G type tilt on it so not only is that a lot to dig into what's going on there, um, but the story of how the e t F got to daylight is also fascinating. So I just thought there was a couple of angles here that we're really a lot to dig into this time. I'm trying Freedom Investing with Perth Toll High person. You're joining us from Houston. How's Houston today? Hello? It's a

humid as usual? I bet it is so so, Perth, what are you bringing to market here? So? I am bringing to market and e t F called the Freedom one hundred Emerging Markets e t F, and I'm doing this in conjunction with Alf Architect, who is our issuing partners. He's been on the show West Grade. We know well, I know well, Um, he is was from the he was in the Marines and then he is now a quant and he does sort of more hardcore smart beta factory ETFs. That's just background on West and that's why

potentially Freedom uh caught his attention because of the Marines background. Yeah, So the Freedom one hundred Emerging Markets et F would be based on the Freedom one hundred Emerging Markets Index. And I'm just gonna stick with talking about the index, because that's my part of it. UM and the index is basically a freedom weighted emerging markets approach. So UM.

What I noticed with the emerging market indexes as an investor is that they are, you know, the market cap weighted ones, and most of them are market cap weighted on the country level. They have a very high allocation to China. So they have about thirty five allocation to China. If you look at all of them UM M, s c I, foot see SMP, they all have about thirty to thirty percent in China. UM Footsie already has added a shares and ms C I is adding a shares now,

so that will only increase. And that's a huge allocation UM to one concentrated country that is somewhat high risk as far as geopolitics go. UM And the reason why I personally didn't want kind of a China fund in disguise in my investments in my emerging markets UM index funds is I am actually from China. I grew up half in China and half in the US. I was born in Beijing, and I, you know, being somewhat familiar with the situation over there after living and working there

after college. UM I kind of didn't want my my investment dollars to be allocated that way, So that's why I created the freedom weighting methodology, which basically gives freer countries a higher weight in the index, less free countries a lower weight, and the worst offenders as far as human rights and economic freedoms are eliminated from the index. So who gets the biggest waiting? Taiwan actually has the biggest waiting currently, so it's Hiwan, South Korea, Chile, and

Poland with the biggest waitings. You know, if you look at v w OH, that's the big emerging markets ETF. China is a thirty waiting and that's only going to go up as a shares get more included. So China, could your your e t F is going to differ pretty drastically from the more popular emerging markets. Yes, so we have actually zero China allocation because of their freedom scores which we get from a third party. Um, they

are eliminated from the They're excluded completely. Um. But we do have high allocations in Taiwan and South Korea, which are very free emerging markets. So it's kind of a happy accident that we have low tracking yourr um with high active share because those those markets are highly correlated. So what was that? What was a memory from your time in China? If you can share one that informed what's become your investing thesis here. Yeah, so there's there's

a lot of things that I saw in China. Um, both as a child when I was growing up there and also when I went back after college. UM. I do remember things from from you know, childhood, like before I was nine, where somebody would say something politically sensitive and then somebody else, like an adult, and then an adult would say, oh, you know, don't say that the next near the kids, like they'll hear you, or they'll

repeat it. Or there was one time my my grandfather in his library had all these books and I I found a book that had a story about two people in a garden. Um, I guess that's the beginning of it. So now I realized it was probably a Bible. My grandfather was his life was saved by a Christian missionary doctor in the in the World War two, UM, so he probably did have a Bible. UM. And then I remember my grandmother getting really mad at him that I had found that, and I never saw it again. UM,

so things like that. But also, and I don't think I've ever told those two before, but when I went back to Hong Kong after college, that's when I realized, Wow, my life would have been completely different had I never gone to the States. UM. And then, you know, for example, I'm a child of the I'm a product of the one child policy. UM. And I met a friend there, Maggie, who was in Shanghai at the time. We traveled to Shanghai and Beijing often from Hong Kong, and she was basically,

you know, very similar to me. She was the exact same age um, and we had a lot of common interests and basically just like any other of my friends who would be my age um in the US. But the only difference was she didn't exist on paper in China. She doesn't have a birth certificate or state benefits or you know, hospital records or school records because she was UM a girl. And they this family had two children, and they they registered the boy for school for existence.

So you know, yeah, so as a product of the one child policy, I saw when I went back there, UM very clearly at you know, freedom matters, UM. Looking at just the Hong Kong market at the time versus mainland market, there was a difference. And there's also obviously a difference between US markets and Chinese markets and so

um and and policies matters, so policies and governance. So for example, this one child policy which is now the too child policy, you know, it changed the culture of my generation, not to mention all the societal and economic effects is going to have. You know, now it's too child policy, but no one's having two children because the culture has changed. And what was the spark that made you realize that capital markets could be a change agent here? Um?

I think it's when I was working as a financial advisor of Fidelity and I saw that a lot of my clients wanted to invest in China and wanted to invest in emerging markets. But we as Americans sometimes project our own optimism onto these other places. We can't imagine the stuff that goes on um as far as human rights abuses and things like that, So you know, to us,

they don't exist because we can't even fathom it. And then as far as my own personal investments, not wanting my investment dollars to be allocated to some of these regimes, that are more authoritarian and had you know, more human

rights abuses. UM. I think that's that was the catalyst, Like a combination of working in finance, seeing clients want to invest in this without knowing what they're actually investing in, and also my personal UM, my personal investing preferences and perth when you back tested this, how did it perform? So it does track very well too. We use ms c I UM as our backtesting benchmark, and it does. It does perform very well, like very It tracks the

ms c I pretty closely. It does have a slight alpha ad over the five year UM and we do expect to see some alpha over time. Though we are creating this as as more of a differentiated emerging markets exposure that is freedom weighted, so it's it's not necessarily we're promising that every year it's gonna you know, beat the other UM in the market cap weighted indexes. But freer countries are expected to perform you know, more sustainably over time, and they do from what what we found

in our back tests. They recover faster, and you know, intuitively, you know that they use their human and economic capital or their capital and labor more efficiently so they have less capital flight and less capital destruction. And you see that, you know, and I use China as a kind of a poster child example for all of this because it does have such a high weight in the other indexes.

But yeah, you kind of see that in China, like a lot of money tries to come out, people try to come out, So you lose a lot of capital and labor um to freer countries if you're more of an unfree country. And so we do expect that over time, especially in emerging markets where there's such a huge discrepancy between freedom levels, We believe that there is opportunity there for alpha. Can you just break down for us why China was eliminated? Like what, what where? Did you flag

them that? And could they improve that? Yeah, so China has made a lot of improvements over the last thirty years as far as their economic freedoms, opening up a little bit more um, and that has created you know, a huge drastic effect on their on their market and living living standards and so forth. But investors saw very little of that. A lot of that, you know, remained in state owned enterprises and and honestly disappeared from investment returns.

So and you see that happen a lot in the more un free markets, is that investors don't take part in the in the growth quite as much UM. But as far as why they're not in this index currently, yeah, their economic freedoms are still lower than UM relative than some of their peers, but it's really their human freedom UM scores that that caused them to be to be

excluded from the index. So we look at both human and economic freedoms and we use we use the Fraser Institute, Cato Institute, and Friedrich Naman Foundation for Freedoms UM data set on human and economic freedom. So it's a combined score of seventy nine variables including what I categorized into the rights to life, the rights to liberty, and the rights to property. So is their rights to life and liberty or civil and political freedoms that caused China to

not currently be in the index. So you've got this great idea of Perth and now it is coming to market. You're effectively like a gladiator who's just stepped into the ring. Right, So what does success look like? And by the way, let me just set up the ring here. Okay, we try to call the terrorism I cannot understate or overstate rather how brutal the E T F industry is, especially

for an indie. This is like, this is like um pers walking in as a human amongst all these gigantic monsters and beasts, Vanguard and black Rock, and they will squash you so quickly, they'll copy your idea, they'll undercut you on fees. But shot you do that, You you are David to the goliath. What's your plan of action? Thanks? Eric,

That's that's great. So it doesn't feel exactly like that actually, So um I do know that, you know, we are coming up against a lot of industry forces that are not favorable to indie issuers and two new types of approaches and and yeah, we we don't have the pricing power that some of these in the Big three have. Um I think what we do have, though, is is enough of a differentiation and idea. So it's different enough concept that you know we are going to have first

to market. We are the only one doing it. Um I talked with some some very well known investors and people that that you know, my partners are surprised would be interested in in taking part in our kind of adventure. Here, and what I think those investors see in this is one they resonate with the freedom idea. So I'm hoping that investors to will resonate with that um and that will attract people who care about freedom and want to

invest in a way that aligns with those values. But also I think it's just it's different enough that you really can't get it anywhere else currently. I just did a quick search on f search on the terminal for e M that has less than one percent China. These are e M ETFs. There's a handful, but a lot of them I'm going to eliminate because their leverage or

just have something we're going on. But like x C e M is one Columbia e M core x China, Like that whole thing is like we're just gonna go e M and we're just gonna kill China yours again, and I think more thoughtful. But think obviously Columbia wouldn't have done this if they didn't think there was some market for somebody who wanted something like this. So Perth in my view, when these Indians come out with these products,

I think you've got two angles here. You can sell the story, but the story probably is going to be really much more sellable, if you will, when China has a rough couple of years and your E T F outperformance E M and VW O in spades, and then I think the story is going to really take hold. I have seen this happen before and before with robotics, cybersecurity. I think that's usually the key for these niche players. So you should probably root for China to have a

rough go of it right now. I do want to be clear that I'm not rooting for China to fail. This is not an ex China fund so this is you know, I hope China can can be in the index, you know, someday, and I don't see that happening soon, but I hope that happens. Um. You know. But it's not just China that we we exclude. We also exclude Russia, Egypt, Saudi Arabia just about to be added to MSCIS index. Um.

We don't have any any allocation too. And and it's a similar situation to China where I don't expect that to change anytime soon. Um. And and again we are not deciding, you know, what countries go in there. I couldn't game the system if I tried. We're using quantitative freedom metrics from a third party UM for complete objectivity

so UM. So yeah, so we we don't have any China and that is most notable because the other indexes have so much China UM, and I think that does give us a lot of differentiation and and just gives investors a different, different exposure UM that would lower their risk you know, overall, if they were to incorporate both the you know, commonly used benchmarks and UM something like this. So yeah, it's not just just China that we're picking on UM and and we're using basically third party objective

quantitative metrics. So I have a big question for you. Yeah, what have you learned about the world that you didn't know before you you start this process? UM. So Actually, I am very thankful to be in the e T F equal space because it's been a lot more supportive than you would imagine some you know, Wall Street industry to be so UM and I think you find that

people agree with that across the board. That is more inclusive, it's you know, more diverse UM and just open to new ideas because you know, for a long time e t s have been the underdog. So you know, we tend to you know, stick together, and even your competitors

become your friends. So that is UM something that I really enjoy about the E t F world, you know, UM as a good example, since we're on this show with Eric, when I first started doing this, and I'm not just saying this because were on this show with Eric by the way, UM, if it's complimentary towards me, Joel's about to cringe. You know, I've looked up to him for a long time since we since basically the

he did the you know, movie ratings article. I believe it was like a couple of three years ago, maybe UM, right when I first started this. UM, him and just the industry giants you know that that we work with now, like Reggie Brown, who when I when I've worked with Fidelity before this for you know, many years as an investment advisor and UM. I left Idelity in two thousand fourteen UM to spend time to basically become a stay

at home mom to a young child. And the month that I left Delity was April of two four UM and the cover story on Bloomberg Markets that month was Mr E t F. And it just had this gigantic headshot of Reggie Brown on the cover. Blom wow. Yeah. So so that was the month I left, and I

just remember that article. UM and then when I started doing this UM officially and went to inside ETFs for the first time, I you know, made it a point to meet Reggie just because to me at the time, because of that magazine article, because of that cover, he was Mr e t F. So now he is the lead market maker on our fund. So I mean, stuff like this that happened, you know, over this time. I just I couldn't have I couldn't have imagined and uh a lot of this I couldn't have orchestrated if I tried.

I just think that people this idea is something that I feel like it's bigger than me, and I just I get to do it, but really it's it's bigger than me. And the way that I met a lot of my investors, like Rob or not, you know, was the same way when you talk to investors, what are you hearing so far? And how do you get them to actually put assets into your fund? Yeah. So something that I learned as a financial advisor, it's it's easier

to sell stuff to people that they already want. So instead of convincing people that freedom is important in the very beginning when I have when I have to do things that are ailable, I'm talking to people who already believe in freedom. So my very first investor, committed investor in the fund was Rob or Not, and Rob is someone that I you know, looked up to as well for a long time. Um. In fact, back in the day, like way before this was an official thing, I was

interested in indexing and non cap weighted indexing. He his firm, Research Affiliates, was in Pasadena on Lake south Lake Avenue, and I worked at the Fidelity on South Lake Avenue, so he was a few doors down and I would sometimes like walk over there and just stalk the Research

Affiliates building because I thought they were so cool. So so so after I left Fidelity and eventually started this, when my kid, you know, started started going to school full time, I called Research Affiliates and I said, Hey, do you guys want to partner on this? And they were just like, please go away. Uh So they didn't, you know, want to talk at all. I couldn't. There

was no chance of getting through to Rob Um. And then I went to that inside ETS the first year, as I mentioned, where I met Reggie Brown, but also um, I met this They had an app that year at the conference. It was like an in intra conference Twitter app and people could just tweet each other just within the conference. And then somebody from a China talk tweeted, I can't believe this guy is talking about China, but he's not mentioning the one child policy and all its

implications on the economy and society. And I was like, oh my gosh, like somebody else knows and cares about the one child policy. And I look him up and he's a portfolio manager in Tennessee, and so, um, we end up meeting and his name is Ralph Lehman. And I believe Eric you know him as well. He's coming out with a book soon about ETS. So he invited me to go speak. He was he's the president of a cf A society in Tennessee. It's a tiny society, it's like twenty people. Um, he invited me to go

speak there. I was like, sure, i'll go. I'll go speak in in Tennessee. So he had me to speak at the Chattanooga Society and the Knoxville Society and they were both about twenty people each event. It was super fun um And then after that they referred me to the Tampa Society for their annual Forecast Dinner. So, as you know, the Forecast Dinner is kind of a bigger event with c if A societies, and this society at

this event had about three hundred people. And this was my first year doing this and barely started, had no idea what I was doing. And I was on this panel with black Rock Morning Star and this guy named David ko Talk and it went well. And after the panel, David ko Talk invited me to a fishing camp called Camp Coo Talk And at first I was like, who does this. It's literally like fifty economists and finance people that go fishing in the woods for three or four

days with at the time no WiFi. So you know, my friends were like, you should go, you know, you can meet all these cool people. So so the beginning of it does like stuck stuck in the woods with with a bunch of scientists and we're going to go fishing. They actually call it the Shadow Know Fed because there's people people there that are on the shortlist for the FED. So I've not I know people who go it's seems like it's a wholesome time. It's actually it was super fun.

But but you have to take a seaplane to get from the Bangor airport into this very remote campsite, which is like almost in Canada. Or you can drive, so I was initially planning on driving, but I was, um, just kind of tired from my meetings. When I was flying there from New York, and I called the seaplane company and said, Hey, is it too late to get a seaplane for today? And they were like, no, you

can share with Rob or Not. I was like what they were like, yeah, you just intercept him at the airport. Here's his flight number and so forth. And so I literally intercept Rob or Not at the Bangor airport and say, hey, did they tell you that we were gonna be writing together? And he's like yeah, And so we basically met that way. Um. We ended up fishing together for several days, and after camp, he got on a call with me at my quest

with a potential client. The potential client didn't end up committing assets to the fund, but after the call, Rob told me that he would basically became my first investor that he told me he would put in some massets to get the fund started. And then over time that just kind of kind of grew. Um. And then once once uh West and I were talking about, you know, launching an ATF on my own, that's when I started, you know, raising money for not only the fund but

also for the company. And Rob is now the biggest investor in my company as well. You know, this story speaks to the indie world. Um. You know, if you're a vanguard and you put this thing out for three basis points. I mean, like I said, it's um I referenced field of dreams. We call it lower it and they will come, Um the fee of dreams. That's our theme, our ongoing theme. That they don't have to do all this, you know, it's just that it's just that they just

come and they buy it. When you're indie and you have a niche product, people don't know, you gotta you know, you've got to hit the streets. You've had to say yes to things, take seaplanes, chat people up relationships, relationships. There's some companies that you see that where they work this really well that are indie. That and that's why there's a lot more. I don't know. There's a lot of stories in that world versus say, the big gigantic beasts that just sort of put it out there for

almost no cost and get all the ass. I mean, I want to I want to invite to this fishing trip for the record. You've got to You've got a ticker. Yep, how did you settle on it? Yeah? So, so the ticker for the index and the fund are the same. So I'm talking about the index here when I when I say this, so tickers F R, D, M and um My, I have a friend who was a mom, friend who came up with this ticker while at the

grocery store. So we I was at um. It was a summertime when I first started the index, and we had our kids in the same summer activity and we were picking up and I was like, I can't think of a ticker. She's the one that did my graphic to signed for my you know, business cards and things like that, so you know, she she knew about what I was doing as far as the business, and so I mentioned that, you know, when we were picking up

our kids. Later on in the day, she texts me from Kroger which is a grocery store here, and she's like, hey, how about f R d M. And I'm like, that's kind of perfect and so so literally, you know, my my mom friend came up with this ticker. Her name is Monica. That's awesome. No, it's good. It gets the point across. I mean free would be good too, but that would I mean, that could be taken, but that's also indicative of maybe like free costs was taken at

the time and then it became free. Uh yeah, but but then we thought of the cost issue, so yeah, yeah her. Congratulations on your e t F. Thanks for joining us on truly, thank you so much. Thanks for listening to Trillions until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple podcast, Spotify, and whatever else you'd like to listen. We'd love to

hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Faltriness, and you can follow Perth at perth Underscore, Toll t O l l E, her tickers f R d M, and her websites Life and Liberty Indexes dot com. Trillions is produced by Magnus Hendrickson Francesco Levy is the head of Bloomberg podcast by