Discovering the Power of Freedom-Weighted Investing: The Freedom 100 Emerging Markets ETF
The investment landscape is ever-evolving, and as global markets continue to grow and develop, so do the strategies used to navigate them. One such innovative approach is the “freedom-weighted” strategy employed by the Freedom 100 Emerging Markets ETF (FRDM). This exchange-traded fund (ETF) aims to outperform traditional market-weighted emerging market (EM) funds by excluding countries with less political and economic freedom.
The Freedom-Weighted Strategy: A New Way to Approach EM Investing
FRDM’s methodology filters 24 emerging market countries based on three key factors: liquidity, market capitalization, and freedom scores. Freedom scores are calculated using data from the Fraser Institute’s Economic Freedom of the World report. The result is a diversified portfolio of approximately 100 stocks, offering targeted exposure to emerging markets with strong democratic institutions and free markets.
Filtering Out the Risks: Excluding China and Russia
One of the most notable countries excluded from the Freedom 100 Emerging Markets ETF are China and Russia. These two countries, which together make up a significant portion of traditional EM funds, are often associated with political instability and economic volatility. By excluding them, FRDM aims to mitigate risks and enhance returns for investors.
Diversification and Volatility: A Trade-Off Worth Making
The Freedom 100 Emerging Markets ETF’s higher volatility may initially seem daunting, but it is offset by its positive upside and downside capture. This means that the fund tends to perform well during market rallies while minimizing losses during market downturns. Aggressive investors seeking targeted EM exposure will find this trade-off appealing.
Personal Impact: Enhanced Diversification and Risk Management
For individual investors, the Freedom 100 Emerging Markets ETF offers an opportunity to enhance their portfolio’s diversification by investing in emerging markets that prioritize political and economic freedom. Additionally, by excluding countries with high political and economic risks, investors can better manage their overall risk exposure.
Global Impact: Encouraging Economic Freedom and Stability
On a larger scale, the Freedom 100 Emerging Markets ETF’s focus on freedom-weighted investing can have a positive impact on the global economy. By rewarding countries that prioritize democratic institutions and free markets, the ETF may encourage other countries to follow suit, leading to increased economic stability and growth.
Conclusion: A New Era in Emerging Market Investing
The Freedom 100 Emerging Markets ETF represents a new era in emerging market investing. By employing a freedom-weighted strategy, the ETF offers investors the opportunity to gain targeted exposure to emerging markets with strong democratic institutions and free markets. Excluding high-risk countries like China and Russia, and managing higher volatility through positive upside and downside capture, the Freedom 100 Emerging Markets ETF is an attractive option for aggressive investors seeking to diversify their emerging market holdings.
- The Freedom 100 Emerging Markets ETF uses a freedom-weighted strategy to outperform traditional market-weighted EM funds.
- The ETF filters 24 emerging market countries based on liquidity, market capitalization, and freedom scores.
- China and Russia are excluded due to political instability and economic volatility.
- The fund’s higher volatility is offset by positive upside and downside capture, making it suitable for aggressive investors.
- Individual investors can enhance diversification and manage risk by investing in the ETF.
- The global impact of the ETF could encourage other countries to prioritize democratic institutions and free markets.
