Welcome and Trallians.
I'm Joe Webber and I'm Eric Valcunas.
Eric.
For the third time, we're having Perth Toll on the podcast. She's the founder of the Life and Liberty Indexes and specifically the Freedom one hundred Emerging Markets ETF. She was on the first time in twenty nineteen when the ETF was new, and she came back in twenty twenty two to do a debate with Jeremy Schwartz Wisdom Try about emerging markets. And since either of those appearances she has been crushing it. Her ticker FRDM has been absolutely crushing it.
What do you want to know about this ETF now that you didn't know before?
Perth has been interesting to me because a it's indy. I like indie stories. She lived it. You know, a lot of this is about, you know, eliminating countries that are not free and buying the ones that are more free. And her experience as a young person in China affected all this. So the story is really great and the indie it's hard to get assets as an indie. You kind of need a shiny object moment, as we say all the time. Well, FRDM has got that moment right now.
I mean I was on a podcast with Dave Nady called etf Zoo, which is pretty good. It's a bunch of analysts to arguing over stuff, and so FRDM came up and I didn't realize how good.
It was doing.
Joel, here's the numbers. It's up one hundred and three percent in the past five years. Emerging markets, we'll say, measured by EEM.
Is up twenty percent. So think about it.
You're five xing the thing that you're also investing within. It's not like I don't know some random crypto five xing the S and P or something. Her stocks and her countries are within EEM. So in other words, she picked the right ones or the freedom story has just
really played out in an intense way right now. And that one hundred percent, by the way, is even better than the queues, which is a ninety two percent, And it's a double EMC, which is I shares this emerging markets x China, which actually had a nice run a couple of years ago. So you're even because sometimes people are like, well, FRDM is just x China, but not really.
It's actually done much greater than even EMXC. So I was like, damn this, this is time to basically let her maybe do a little victory lap and ask some questions like.
The football, and you know what what happened? You know, how how did this work out so perfectly.
This time on Trillions The Future of Freedom Perth, Welcome back to Trillions.
Thanks so much for having me.
So we gave you kind of a long setup in our intro there. Why why has this thesis worked so well?
Yeah? You know, I am so pleased with the way that thesis has played out in this time period. I mean, five years is not super short. It's not super long. We've been around for all seven years. So the first you know, first year and a half or so, it was like COVID times coming out of COVID, and then this five year run. So it has been an amazing run. And you know, as as the you know, creator of the of the strategy, I couldn't be happier for our
clients and just for the way that it's played out. So, I mean, I think it's a confluence of many factors. I cannot take credit for the market, but the strategy did deliver the you know, the exposures to the freest countries in the emerging market space, and that freedom story has truly played out very well. You know, it's not just one country. This past year twenty twenty five, South
Korea was the top performer. The year before that, Taiwan was the top performer, the year before that it was Poland, the year before that it was Chile. So it's been a diversified kind of kind of outperformance in the country. So those four that I just named are always in the top four, have always been in the last of.
Those were the top four. So I'm curious, what, if anything, have you changed along the way during those five years of the ETF or the seven years of the index. What what do you feel like have been the most substantial tweaks you've made as you've gone.
So this is something I'm actually quite proud of. We've made substantially no changes to the index methodology since the beginning, and that is the idea of the index. Right. So when I started this, as Eric mentioned, I am a complete indie and total unknown, and I you know, did not have the pedigree of a PM or fund manager in the in the traditional sense, right. So I came from Fidelity, where you know, we have the likes of
Will Danoff, you know, Peter Lynch. These guys are who I imagine if they wanted to start something like this, would do it actively, and it would be fine because they have the name. I didn't have that. So the only thing I could do is a systematic, rules based strategy. And also that's what I wanted for this, because I didn't want to be responsible for what countries were in, what countries were out, what countries were you know, weighted higher.
We actually use only third party quantitative metrics from the Cato Institute and the Fraser Institute. They you know, measure freedom on eighty seven different variables, and we use the composite free, you know, the composite equal weight of all those variables. We don't even know weight any particular variable higher. So we take no subjective stance and it's as objective as possible. And so I think one thing that I'm
very proud of is we always rebalance on time. We always stick to the methodology, and you know, our partners at ETF architect also want to make sure that we do that. So there's a layer of kind of compliance there that says, okay, it's a passive strategy, it's going to stay that way. And then our index committee also access to checks and balances on you know, myself and the indexes.
When I look at this fund and I compared to EEM or the Emerging Markets benchmark, which is what a lot of people own, So this is what a lot of people own, it looks like there's about forty forty five percent difference. It looks like, for example, if you screen out China already, you just take twenty five percent out of your portfolio. Then you've got Russia you screen out, Then you've got a couple of Middle East countries like
Saudi Arabia and a handful of others. So I get to around forty percent, So that gives you forty percent budget to spend on these other countries which you overweight, as you said earlier, Taiwan, South Korea, Chile, Poland. What is driving the performance here is that those countries they're more free and that has actually caught the investors' attention and the outperformance of those countries. Or is it that investors look at these less free countries and are turned off.
So yeah, it's both, And you know, a country attribution would account for countries what account for about eighty three to eighty four percent of the outperformance attribution in the strategy in the past several years. Not having exposure to Russia when Russia went into a war, not having exposure to China when it all melted down, that really helped. But it's really these out you know, out performing smaller countries that are not very high weights in the other
indices that have really helped as well. And you know, we do do that kind of country screening before the freedom screening, where we look at a country market cap as in relation to world market caps. So these are countries that we have deemed to be large enough and liquid enough to be included in a you know, exchange traded product, but they are you know, less than one percent in the cap weighted induses like the MESI in footzy industy. So for example Chile and Poland, they're both
less than one percent in the other induses. So you know, investors have in those in the cap weighted strategies have really missed out on some of these higher growth, smaller countries that are actually big enough to trade, it's just not big enough for maybe their product, but or in the cap waight at strategies are some much bigger countries. So I'd say there's just been so much opportunity to be captured in the freer emerging markets, and so happy that we were able to capture some of that.
So do you think it's more because of what you own or what you don't own?
It's more what we own, but what we don't own definitely helped as well. Eighty three to eighty four percent of the attributable outperformance is country selection.
So when you were starting off, I remember, I think you were literally knocking on doors, like I think you said you were going around the neighborhoods in Houston knocking on doors and talking about your fund, and you probably knew the investors in the fund at first. Then you get this shiny object moment, and now this thing is taken in money, hand over fist.
I think it's up to almost three billion dollars.
It's taken in like weekly flows for the past six weeks something like that, and the flows are getting thicker. We're talking like one hundred and fifty two million, three hundred million a week. So the fish are jumping in the boat, so to speak. Are you interacting with these people or are you just sitting there going like wow, like, where's all this money coming from? How does that work? From knowing the investors in an intimate way to sort of I guess blowing up is the right word here.
And then all of a sudden, you've got way more investors.
Do you know who they are? Do they talk to you? Has your life changed?
Have you, you know, splurged on any nice cars or anything?
Yeah? I mean you gave me this, this super lay up question chrying to get me to be happy and in the moment when we were on ETFIQ the other day, and I totally blew it by instead highlighting all our periods of underperformance because I just refused to be in the moment, And so I will I will re answer that question now. Yes, my life is is different, but it's not that different, you know. We I do have
a slightly nicer card. I literally traded it, you know, X one for an xtram is literally like not a huge difference, just because I drive around a bunch of teenagers. I don't you know. My house is the same. I haven't changed things that much. This is something that happened very quickly over the last year. We like tripled our assets. And yes, I do remember those early days. And I actually missed those early days. And I was knocking on doors, not you know, in Houston, because you know I was,
I was. I didn't know a lot of finance people here except the Fidelity guys, which you know, they couldn't do something like this at the time. I was knocking
on doors at ETF conferences. I don't know if you remember, you know, meeting you at like ETF dot com inside ECF twenty eighteen, getting you to you know, sign your book or maybe that was twenty fifteen, I don't know, and just you know, saying hello to all the like networking with all the issuers, trying to get somebody to launch the thing, and then nobody would do it, and then finally somebody said they would do it, and then
after a conference at inside ETS they backed out. It was the most you know, the worst into a conference ever, you know, So it was a lot of that and I remember those days, and I actually missed the time when I had to struggle to get assets, when I had to you know, convince people that it's not crazy to not have China, not crazy to have a bunch of Chilian, Poland in a fund for emerging markets. I like being the contrarian and like the only voice in
the room saying something. So now it feels a little less original and I feel like I'm saying the same thing over and over. But I'm but I have no complaints that absolutely, I'm thrilled with how this has turned out.
She's like Warren Buffett.
She could have the same house in ten years and just just to make a point and drink cherry Coke like all right anyway, By the way, in my opinion, is the most punk rock person in the wholegf industry. I always said when she comes on stage, it should be too straight out of Compton from NWA. It just suit or public enemy, something like that. There's something very rebellious about what she's saying. Most of these other issuers won't touch China. She will criticize it, and as we
know from following other news events, no one does. And it's risky to be out there like that, and I give her credit for that. It's there's something that always interested me for somebody who was willing to sort of go a little further out in the branch on any issue in this particular case, it was criticizing some of these dictators and authoritarian countries in a way other people would not. And you know, other people even have products that exclude certain countries, but they won't say a word.
It's just very interesting. Do you have any comment on that.
Yeah, so it's hard to speak out against autocracies, right. I think I have an easier position for that, just because because I have actual experience in the country. You know, I'm actually I've born there. I came here at the age of nine, I went back after college, lived in
Hong Kong and traveled throughout mainland China. Had you know, personal experience with friends under the one child policy who had no name, no birth certificate, no school records, just because they were born a girl, and know that they're the lucky ones. You know, there's sixty million missing women missing in China in my generation. That's not something that
you can easily replace. So I think I have a lot of more front roads experience, and so that gives me a little more I guess credibility on the subject that if you know, let's say, head of some big firm in the US said something, it might not go over as well. But yeah, I think freedom of speech is important, freedom of medium is important, and so I'm happy to most of the times say what I think is true.
So we've actually seen off a fair amount of democratic backsliding throughout the rest of the world and the rise of populism and developed markets. And this is since we talked to you last even I'm curious how you're looking at at that and is there another opportunity for I'll call it a sophomore album from Perthle that's not about emerging markets but might be more about the developed world.
So you know, you know what's interesting. So right now we are getting we are getting demand from global global investors from all over the world for the emerging markets product, and so there are people that are now trying to package the product for their own you know, currencies and in a way that their clients can invest in a tax efficient manner. And then in the US we're getting more requests for developed market products. So developed markets, you know,
there's not as much divergence and freedom levels. It's more homogeneous and they're all relative high in freedom levels. So the thing that I've noticed with the with the rise of populism around the world is that in some of these emerging markets, which is what I've been watching. When we see that happening, the checks and balances and the institutions in the freer ones do prove to be strong.
You know, voters come out and drove to vote in you know, more balanced government in countries like Chile and poland recently South Korea just jailed their you know, ex president for life for unilaterally declaring martial law one day. You know, these types of checks and balances and stronger institutions in civil society is what I'm what I'm seeing happening in the freer EMS and then d MS, Yes
there is. I do see that there's a little more opportunity than the before, as there is a little more divergence than before with the rise of populism, But a lot of that rise of populism is also happening in the smaller d ms or in the in the larger EMS.
Let me this real quick, because I think people in the US were so spoiled with all our freedom that like the tiniest little thing which is like no big deal. People like freedom of speech is dead and it's like okay, relax, can you help I guess give context or perspective to people who might think, oh my god, the US probably it would wouldn't make her screening process. Now that's absurd, right.
It is. I'm gonna I'm gonna push back on that, little Eric, So, yes, that is absolutely absurd. US is, you know, number fifteen out of one hundred and sixty five countries on the you know, Human Freedom Index by Cato and Fraser, So you know, are that's on par with our top ems that are included in the fund. So yeah, it's it definitely would not be an exclusion if we did something right. So that's not even a possibility.
And it's just so far from you know, the lower scoring countries like like you know, China, Saudi Arabia and so forth, where you say something and you can literally be disappeared for it, or your famili's disappeared, you know overnight, or your IPO is scrapped or you know, you're now a nonprofit you know. So that's that's completely like a
different universe. But the latest report from Cato and Fraser did come out and say that the US's score is expected to decline because of things like government interference in private market activity, so like government taking stakes in private companies and things like the tariffs. Now I don't know if that's going to be different now that the terrors have been shot down, which does show some checks and balances,
and whether that will last. So that that is, you know, some of the more protectionists policies on trade and the interference the size of government in private markets. The score for the US is expected to decrease, but you know, the the decrease in score doesn't mean it's not it's not like a drastic situation. It's just, hey, work's affecting something here. And those are two variables that I mentioned
out of eighty seven. So yeah, there are some concerns, and I think it's good for people in a freer market to be very vigilant, maybe hypervigilant, because you know, yeah, freedom is it's a very uh, it's a fragile thing.
Because you're watching the Cato and the Fraser indexes so closely. I'm wondering if you think there's another emerging market that might be approaching something of a breakout moment. Since we've talked about South Korea and Taiwan and Chile and Poland, like those are some somewhat expected, I guess, are there anybody? Is there anybody who's unexpected that you're you know, got your eye trained on.
So a lot of these countries that are geographically close to very on free markets are getting an influx of human capital. So countries like Colombia getting a lot of immigrants from Venezuela for example, a lot of migration there. Countries like Poland getting a lot of migration from Ukraine. So these are countries that are benefiting from this kind of freedom of movement that is coming into their country from very unfree markets that will show up in the
long run. In the short run, actually, India, their population just surpassed China's. India is a country that in our index goes in and out from year to year quite often just because they're right at the average of the emerging market eligible Universe peers. And so they are out
this year, they were in last year. And they've historically, as we mentioned, had very high trade protections tariffs and non tariff trade barriers that has weighed on their economic freedom score and had some other issues on the personal freedom side as well, like freedom of media, like they you know rated Modi's when they did VBC did the story on MODI, they rated their offices, you know, things like that. So there's issues and they come in and out.
But the population growth is undeniable, and you know, demographics our destiny, so especially in emerging markets. So I'm very bullish on them. Now, my opinion does not factor into the methodology whatsoever. So that's just my opinion.
On that, Okay. And what about the Middle East, because there's been so much kind of deal making over there, and we're talking like, you know, big, big, big numbers. Is there anything there that feels like it's something to watch or or do? The rules just simply mean there's few and far between as opportunities to go.
Yeah. So the Middle East is interesting because if I did only economic freedom, they would score actually quite high. Countries like Saudi Arabia, cutter UAE. These are countries that
score very high on eco nomic freedom. But because our data set uses both personal and economic freedoms, so civil, political and economic, and the personal freedom is half of the overall you know score, they are actually scoring quite low just because the majority of that being there very bad women's rights in these countries and freedom of women's speech, expression, etc. So in these these countries are also very oil rich,
They're very resource rich, but without the diversification of industries that you see in some of the freer markets.
Eric brought up your the tremendous inflows that you've you've seen over the last You've made it sound like it's really been within the last year or so. I'm curious what what do you feel like you can attribute that to. Has it really been about American investors looking for international opportunities? Is it the sell America idea? Is it is it just a reaction to Trump or or is it is it performance chasing or something else.
Yeah, I think it's a confluence of factors. I agree with Eric that I don't think sell America is like sustainable, but I think that there is a higher you know, there has been a performance rotation between the US and developed markets and emerging markets, so you know, both developed and emerging markets outperformed the US last year for the first time in forever. So I think there's been some
attention to diversification. And if emerging markets, for example, were to have a breakout again like in the you know, early like two thousands, then then yeah, I think there would be a lot more diversifying into the emerging markets, and I think that's ultimately it's good because you don't know what's going to go up, you don't know what's going to go down. That's why we we diversify. So it's never too late to do that. And I think in the US, because the US market is so strong,
there is a lot of home country bias. And you know, I was an advisor. I know this, and I had a lot of home country bias. I still do so, so I do think that this sell America is not the trade, but diversification is always helpful.
Yeah, we looked at it.
We thought the cellomrapy, the way they started sell America and the tariffs last year when the market was down like twenty percent. Now they use it every day when the market has like a down day. They're like, sol America is back. I'm like, DALs off like one hundred points. I'm like, all right, relax, you're gonna cry wolf here. Won't mean anything. But anyway, we haven't noticed sell America. But we have noticed is people buying some of the things, and that could be gold to gold.
Had a nice run international.
ETFs cash, so people are kind of hedging America maybe not selling it.
It's a diversification, right, because most people are overweight the US as because of the outperformance.
I think what's happening in your case is you do have a core base of people who believe in the strategy, but now you're getting some tourists who are like, ooh, look, shiny object. And it happened with ARC, happened with Bitcoin, happens everybody. The good news is, let's say it goes down, has a bad run, you want half of those tourists will stay, and then your base will stay, and it's you just need to break through one time and you will just live on as a liquid known ETF that does this thing.
So I think that's how I see it.
But I do see some of the flows in the past six weeks because that's when it really got. I think your assets probably doubled in the last month or two, right, something like that. I think some of those are probably just so enamored by the performance.
Is that fair?
Yeah, there's definitely probably some you know, people are screening for performance in whatever screen they use and finding it near the top.
And yeah, but Perth ontfi, Yeah, I know, and Perth is smart and she hangs out with Wes Gray, who's always talking about this. She was on ETFIQ and she goes, listen, it won't always be like this. We're gonna have downtimes. Please, first person ever PM on TV who said no, if things could get bad, I appreciate that.
But this sounds so good. The line that she had in the show on ETFIQ that I wrote down, freedom is not a trade, It is an investment. I was like, that is a.
Great, great line.
Did that just pop out or is that like something that's in your like is that your motto?
That's a kind of in my notes? And that came from from Mark Absy, my friend who is on the Index committee as well.
Yeah, I know him.
He was like, oh, you're gonna be on IQ. Remember freedom is.
He gives me crap on Twitter butt once a month he comes in. He just comes into my replies and it's great.
He's a great guy.
But the thing that if I really step back and think about this, so much of what we talk about with with ETFs over you know, the almost ten years we've been doing this podcast is is most of it is tied to an index and is passive, and yet you've managed to come up with a way of not only having a passive approach, but really fundamentally an engaging
active management argument. And I'm curious when you kind of see what you've been able to find here and you think about the universe of active investing and potentially the future of active investing, Like, what guidance or lessons do you think you and Freedom have for active investing as a whole?
Are you looking at Freedom as active?
Are you looking at a Yeah, I look at it as active because you have an index, but you're and you have rules and methodology and you adhere to them. But fundamentally, you know, there's still an active call here where you have an investment thesis that you're adhering to.
Yeah. So I think we saw a lot of And this is something that occurred to me during COVID, which is and I think people pointed this out to me as well, not just occurred to me, But there are you know, different ways to slice and dice the market and market cab waiting is often not only ineffective, but it's often flawed. Now, it does work very well when markets are very liquid and very large, right, so develop markets US market works very well it's very hard to beat.
But when you get into kind of smaller segments like emerging markets, for example, maybe the other strategy or another strategy is to look around the world and see what's going on and then invest that way. So and that's what ARC did. That's what we did, and a lot of these thematics that's what they do. So I think thematic is something that I've always kind of kind of liked.
And the other thing about that is when people invest in a thematic or something that has a thing that they believe in, it's easier for them to stick to it in bad times. So you know, like Eric said, I'm hoping that our tours coming in now are performance chasers. If I could say anything to them, I would say, yes, zoom in on those periods of underperformance, because we do have those as well. Look at this as a long term but also know that, yes, freedom is an investment,
is not a trade. And if you're an advisor going into this for your clients, when things are bad, let's say that we underperform because for example, China or Saudi Arabia outperforms, tell them that's why that you were underperforming, And most investors will be happy with that. I am an investor in this fund, and you know, I find it very easy to stick to in bad times, just
because I do absolutely believe in the strategy. So when you're investing in a theme or a strategy that you believe in, it's much easier to stick to it in the bad times, and that alone will increase your chances for success in a long run.
All right, last question, if you were launching a faradium again today, what would you do differently.
That's a really good question. I think I would not be as stressed. Yeah, I would be a little more chill. So I you know, I really love the way that this all turned out. You know, I work with the best operating partners in the world. ETF Architect, those guys Wes Gray. I have the best LPs in the world, Rob are Not and my other LP over in the UK. Who wants to, you know, be anonymous, but you know it's it's it's you know, I I work with the
best people. I was able to because we went so slow in the early years, because I was being you know, mom to young child at the same time, I was able to spend some time getting to know the industry, getting to know people like Eric and just had so much support. And I believe that we have support that I don't even know about because we've had times like in the first five years. Eric pointed this out. The first like five years we had no outflows, like no
net redemption days. I believe that we have so many supporters out there that that we're rooting for us this whole time, and I just wanted to or if I were to do this over, I would focus more on
that and stress out less. I'm very stressed because I also have a teenager, so you know, and times when I have an opportunity to celebrate with people who have supported us since day, you know, minus three hundred, like like you guys like Eric, you know, when he gives me a layup question on TV, I would answer it better and be happier and not be like, please see our periods of underperformance. But you know, again, that's how I was trained, and I work with people who make
sure I still do that. So It's unlikely that I'll be able to relax, but that's what I would do if I could do it better.
We'll leave it there, Pertle. Thanks for joining us on trillions again. Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, bloomberg dot com, Apple Podcasts, Spotify.
Or wherever else you'd like to listen.
We'd love to hear from you. Hit us up on social I'm at Joel Weber Show, He's at Eric Balcino's. Trillions is produced by Magnus Hendrickson.