At The Cash: Higher Outcomes By NOT Investing with Dictators, with Perth Toll, (January 14, 2026)
Full transcript beneath.
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About this week’s visitor:
Perth Toll is the founding father of the Life and Liberty indexes and the creator of the Freedom 100 EM Index (image FRDM). She was named one in all 10 to look at in 2020 by Wealth Administration Journal and one of many 100 individuals reworking Enterprise by Enterprise Insider in 2021.
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TRANSCRIPT:
Intro:
Freedom (I received’t allow you to down)
Freedom (I cannot provide you with up)
Freedom (gotta have some religion within the sound)
You’ve acquired to offer what you’re taking (it’s the one good factor that I’ve acquired)
Barry Ritholtz: There are various problematic international locations on the world stage. Not solely are their political behaviors unhealthy, however they’re additionally unhealthy to your funding {dollars}.
Most rising market indexes, nonetheless, make investments broadly throughout all of those international locations no matter their political exercise. If solely there was a solution to keep away from authoritarian regimes, dictators, and different unhealthy actors that destroy your investing capital.
Because it seems, there’s a fund to do exactly that, investing in rising markets with out steering cash to the worst international locations on the planet. I’m Barry Ritholtz, and on at the moment’s version of At The Cash, we’re gonna talk about how one can keep away from these international locations which can be harmful to your wealth.
To assist us unpack all of this and what it means to your portfolio, let’s herald Perth Toll. She is the founding father of the Life and Liberty indexes and the creator of the Freedom 100 EM. Index (ETF, image FRDM). She was named one in all 10 to look at in 2020 by Wealth Administration Journal and one of many 100 individuals reworking Enterprise by Enterprise Insider in 2021.
Her Freedom 100 EM Index, ETF now manages over $2 billion and has overwhelmed the S&P 500 500 over 1, 2, and three years.
In 2025, freedom was up 67% versus the S&P 500 up virtually 18%. Perth, let’s simply begin with the essential idea. Why display screen rising market corporations for an idea like. Freedom. How does screening out dictators, authoritarians, and different unhealthy actors impression market efficiency?
Perth Tolle: I believe the, the issue we’re making an attempt to resolve right here is that rising markets buyers, um, beforehand didn’t have a solution to get a diversified rising markets allocation with out funneling cash to autocracies.
Historically, the best way indices are weighted is by market cap, and so the biggest autocracies within the rising market area like China, Russia and Saudi Arabia traditionally has gotten the, you realize, greatest weights. These three international locations previous to the warfare have been all within the high 10 of most EM indices. Throughout the top of COVID China was, uh, 41% of the MSEI rising markets. Index and now it’s nonetheless upwards of near 30%.
A few of these giant autocracies get a really giant weight within the rising markets indices. And in order that’s actually the issue that we’re making an attempt to resolve by freedom weighting as a substitute of market cap.
Barry Ritholtz: I’m actually fascinated by the origin story of the Freedom Index and the ETF. What made you determine conventional rising market benchmarks have been damaged? Yeah, so I grew up in each China and the US. I used to be born in Beijing and I got here to the US after I was 9, after which I labored in Hong Kong after faculty for a couple of 12 months. There I noticed the distinction between the US market, the Hong Kong market on the time, this was 2004, and, the mainland Chinese language market.
I noticed that insurance policies impacted the way forward for a society and the way forward for markets. You understand, one coverage that actually struck me was the one youngster coverage below which I, you realize, was born and grew up in, in China. That coverage has triggered the largest demographic disaster on the earth at the moment, and doubtless we received’t get well from that in our lifetimes.
That’s one of many issues that made me understand that governance, on the nation stage really has an impression on society and markets.
Coming again to the us I labored at Constancy for 10 years as a monetary advisor. And I had purchasers within the LA and Houston markets who stated, I don’t wanna, for instance, I had a Russian shopper that stated, “I don’t wanna put money into Russia as a result of it’s like funding terrorism.” That was in 2014. So you’ll be able to see how prescient that was.
I wished to have a manner for allocators to at all times have that rising markets allocation with out, you realize, uh, funding autocracies, which is normally not the intention of most buyers.
Barry Ritholtz: Actually, actually attention-grabbing. You created this freedom index with a few of your companions. Outline freedom for our viewers in market phrases; once we say this can be a freedom weighted portfolio versus a market-cap weighted portfolio, what precisely is being measured? How does that translate into an index?
Perth Tolle: The very first thing is we’d want these quantitative metrics for freedom. And so we use a 3rd social gathering index and dataset referred to as the Human Freedom Index and Dataset by the Cato Institute and the Frazier Institute. And these are two assume tanks which can be utterly privately funded. They don’t take any authorities cash, not even from the US or Canadian governments, um, the place they’re primarily based.
They take a look at 87 totally different variables for freedom, and that features issues like civil freedoms, consists of political freedoms and financial freedoms. You’re taking a look at each private and financial freedoms, which was vital to me coming from a rustic that had points with each.
Issues like terrorism, trafficking, torture are within the civil freedoms class, freedom of speech, media expression, civil process, legal process political freedom class. After which financial freedoms are issues we’re all extra acquainted with, like taxation, enterprise laws, personal property rights, rule of legislation, um, soundness of financial coverage, freedom to commerce internationally. The upper the free commerce, the higher, um, and the liberty to carry, you realize, uh, offshore financial institution accounts and so forth.
All of this stuff added collectively — the 87 totally different variables and sub-variables — mix into the composite nation rating, which we use as the principle enter into our methodology. With that nation rating that measures freedom by a 3rd social gathering, we flip that into nation weights and allocations, after which make investments accordingly.
So the upper freedom international locations. Get a better weight. The decrease freedom scoring international locations get a decrease weight and the worst offenders are mechanically excluded as a part of the liberty ready course of.
Barry Ritholtz: 24 rising market international locations, what number of corporations do you take a look at? After which what number of find yourself within the index and within the index, as soon as it’s freedom scored, I’m assuming it’s additionally market cap weighted?
Perth Tolle: On the nation stage, it’s a hundred p.c freedom weighted, earlier than we embark on freedom weighting, although, we do have a, um, a display screen for market dimension and liquidity. So markets which can be too small or too illiquid. Usually are not a part of the eligible universe. So we do have a 24-country preliminary universe, after which about an 18-country eligible universe.
As a result of international locations like Czech Republic, for instance, are very free, however not sufficiently big. Peru, very free, however not liquid sufficient, so these aren’t. Included within the freedom weighting, course of. So about 18 international locations are left upon getting that eligibility, course of down. And people are one hundred percent freedom weighted with.
So the best freedom international locations have the best weight, and the best way the methodology works is that it’s a must to be above common amongst these 18 peer international locations in your rating to be included. We’re offering, the the freest rising market international locations within the eligible universe, and there are some very borderline international locations that go out and in yearly.
Barry Ritholtz: Give us some examples.
Perth Tolle: India is a borderline nation. That’s, the rating for India is nearly common amongst all of the 18 nation friends. So that is together with international locations like Taiwan, Chile, Poland, South Korea on the freer facet, after which international locations like China, Saudi Arabia, Egypt, Turkey on the much less free facet.
India is concerning the center. Typically it’s in, and generally it’s out.
Barry Ritholtz: Upon getting this checklist of nations, how do you display screen by all of these corporations inside the favored high 9, high 10 international locations to place collectively the index and what number of corporations go into the index?
Perth Tolle: As soon as we now have the freedom-weighted nation weights inside every nation, we take the ten largest, most liquid constituents, and people are market capitalization weighted inside their freedom-weighted nation weights. We do exclude state-owned enterprises –
that’s simply to carry the financial freedom theme during.
The much less authorities interference in personal markets, the higher. That’s the one factor we do on the safety stage. So we wished to actually isolate the liberty issue. It’s largely a top-down country-level technique on this, on this product.
Barry Ritholtz: What first attracted me to this, uh, has been China – you grew up in China and also you labored in Hong Kong. You have got an entire lot of perception into this.
Each time I talk about China with buyers, they’re at all times shocked after I say, Hey, you realize, over the previous 30 years, since 1995, China’s markets primarily down a few digits. If you wish to embody whole return and dividends, it’s up about about 100%. The entire return for the S&P 500 over the identical 30-year interval is over 2700%.
China has turned out to be a reasonably horrible funding for Western buyers. Why do you assume China has been such a laggard?
Perth Tolle: The primary downside with investing in Chinese language corporations is that these are nation, these are corporations that need to put state pursuits first. They’re, you realize, not gonna attempt to succeed essentially the most by offering one of the best worth for his or her purchasers. They’re going to attempt to curry favor with the federal government. When your pursuits are divided like that, buyers are subsidizing the price of placing the state’s pursuits first. And as we all know with China particularly, the state’s curiosity could also be in contradiction with American pursuits or pursuits of overseas buyers usually?
A few of these corporations, for instance, Tencent has an app referred to as WeChat. And you realize, it was well-known again within the day when, all of the Uyghur information was popping out that the federal government was utilizing WeChat to crack down on dissidents and on the Uyghur inhabitants.
After all, WeChat has to offer all the information over to the federal government that they need as a result of their in their very own enterprise pursuits and different pursuits of their stakeholders don’t come first, however the authorities’s pursuits come first.
These are kinda the risks of investing in a rustic the place all the businesses are extra topic to the state’s curiosity than their very own.
Barry Ritholtz: And once we take a look at an app like TikTok, the query is how concerned is, uh, China’s surveillance state and safety and their their model of the CIA monitoring, managing, manipulating what US youngsters see.
That is actually a difficulty with Chinese language corporations, isn’t it?
state It’s, however TikTok is, is an entire separate situation altogether the place you’re speaking about, you realize, interference in in overseas curiosity in overseas governments. And so yeah, that’s, that’s a completely totally different situation that we don’t even handle on this, on this index, however completely. Um, dictatorship and authoritarianism is, um, in a globalized world is contagious, however so is freedom.
We imagine that the extra individuals put money into freedom and particularly, within the finance world on Wall Road, we’re ready of Privilege and energy. It’s a place of energy to have the ability to direct belongings, whether or not it’s your personal belongings or different individuals’s belongings. And in rising markets, investing, you realize, there is no such thing as a impartial. You’re both, you realize, directing belongings for good or in some circumstances for. Evil, sadly. And so we don’t wanna be within the place of directing belongings for, um, to allow extra authoritarianism.
And if we will, we need to be within the locations which can be selling freedom on the earth.
Barry Ritholtz: Let’s speak a bit bit about, uh, one other nation the place authoritarianism guidelines, Russia, I think lots of people first acknowledged the benefit of your method to, uh, rising market investing when Russia invaded Ukraine, and successfully their shares plummeted to zero. In case you have been holding Russian shares, they beautiful a lot get marked all the way down to nothing in all people’s portfolio. Inform us a bit bit about how Russia has fared within the Freedom Index and what’s been occurring in that nation?
Perth Tolle: Russia has by no means been an included nation within the, FRDM index and when Russia invaded Ukraine, you realize, we have been the one rising markets index that didn’t have Russia in it for this specific motive.
When their market went to zero, nobody noticed that coming. Um, so this was undoubtedly not one thing that was priced in on the time as a risk it was. Truly within the high 10 nation holdings within the MSCI rising markets indices.
Buyers acquired hit fairly arduous throughout that point. And that was the time when, as I recall, most buyers woke as much as autocracy threat. So China, Russia, a number of international locations with state-run economies.
Barry Ritholtz: Stroll us by your determination as a substitute of simply underweight them, simply completely exclude them. What’s the pondering there?
Perth Tolle: Even when we underweight auto, see, you realize, the, we’d nonetheless be funneling cash in direction of them. Our fund has $2 billion proper now in it. MSCI, indices has a whole bunch of billions monitoring them. Even a bit bit in an autocracy is de facto not what we would like. We don’t imagine that’s one of the best place to take a position.
We imagine that there’s so many good alternatives within the rising markets universe outdoors of autocracies; individuals solely consider the BRICs due to the BRIC acronym, however there’s international locations like Chile and Poland that get lower than 1% weight within the cap-weighted indices, however which have the market dimension and liquidity. To have scale in a product like an ETF and buyers can take part within the super development that has gone on in in these international locations. And our buyers have been in a position to profit from that.
We imagine these are the international locations the place you’ll find the locations which have one of the best development tales sooner or later – and that’s the place we wanna be.
Barry Ritholtz: So to wrap up, if you happen to’re an investor that desires publicity internationally, in order for you international rising market publicity, however you don’t wanna funnel cash to international locations that actually interact in a number of the worst behaviors there are on the worldwide stage, and have seen their inventory markets carry out poorly due to it. Contemplate a fund that’s primarily based on freedom on political, civil, and financial freedom. Uh, to offer you that type of publicity with out all the downsides.
Have a look. For instance, on the Freedom 100 Index and the ETF FRDM, it’s actually an enchanting story.
I’m Barry Ritholtz. That is Bloomberg’s on the Cash.
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