Freedom 100 Emerging Markets ETF (FRDM)

The Freedom 100 Emerging Markets ETF (ticker FRDM) invests in roughly 100 large-cap stocks from emerging-market countries that score highest on measures of personal and economic freedom. Unlike traditional emerging-market funds that weight countries by market size or GDP — giving China and India an outsized voice — FRDM filters its universe first by freedom metrics, tilting the portfolio toward democracies and market-friendly regimes while excluding state-owned enterprises and autocracies.

How freedom-weighting changes the emerging-market picture

A traditional emerging-market fund buys stocks in proportion to each country’s market capitalisation — so China and India alone might represent 40% or more of the portfolio. FRDM inverts that logic. It starts with 24 emerging-market countries, measures each on personal freedom (press freedom, rule of law, civil liberties) and economic freedom (property rights, business freedom, lack of corruption), and then builds a portfolio from the top scorers. The result is a dramatic reshaping of the usual emerging-market mix. Taiwan, South Korea, Poland, and Chile feature prominently, whilst China and India are almost entirely absent. This is not a bet on any one country; it is a structural tilt toward governance and institutions.

The fund’s philosophy rests on a simple premise: countries with stronger institutions and rule of law tend to be better places for capital to go long term. They attract business investment, retain talented people, and create the predictability that markets need to thrive. A company in Warsaw or Bangkok with transparent regulation and contract enforcement has a structural advantage over a competitor in a jurisdiction where the government might nationalise it or bend the rules for a rival.

Performance through market cycles

The practical effect of freedom-weighting shows up most sharply in periods when geopolitical risk rises or when autocratic governments tighten control. During expansions, emerging markets as a class tend to perform well, and FRDM rides that tide alongside others. But when investors recoil from political uncertainty, markets dominated by state-owned enterprises and opaque governments suffer more. FRDM’s lighter exposure to those regimes has historically insulated it somewhat from the worst of those selloffs. Conversely, in rallies driven by sheer emerging-market size and momentum — China’s tech boom, India’s growth surge — FRDM lags because it is deliberately underweight those markets.

The fund’s performance is also sensitive to sector rotation. Because it overweights technology and financial services relative to traditional emerging-market indices, FRDM benefits in periods when growth and innovation stocks lead, and suffers when markets favour commodities or defensive value. During the 2020–2021 post-pandemic boom, FRDM’s tech tilt and exclusion of commodity-heavy Russia boosted returns. In commodity cycles, when oil and metals rally, that same positioning works against it.

Why the freedom lens matters for cyclical risk

The heart of FRDM’s case is that freedom-weighted countries tend to recover faster from downturns than those with weak institutions. A recession in a rule-of-law jurisdiction typically sees prices fall and investors wait it out; when conditions improve, recovery is reliable. In a country with unpredictable government, the same downturn can trigger capital flight, currency crises, or nationalisation — turning a cyclical shock into something structural. FRDM’s built-in bias toward transparent, accountable regimes is a hedge against tail risk even if it sometimes means missing the absolute biggest rallies.

The fund carries real costs and trade-offs. It has higher expense ratios than simple cap-weighted emerging-market ETFs. Its universe is smaller — 100 stocks versus thousands in the full emerging-market opportunity set. And it is philosophically controversial; some investors argue that governance rankings are Western-biased or that excluding entire countries is too blunt a tool. Most practically, FRDM’s concentration in tech and developed-market-friendly countries means it can underperform in commodity booms or when the largest emerging economies stabilise.

How to research FRDM

The starting point is Freedom ETFs’ own documentation: the fund prospectus and fact sheet detail the freedom-weighting methodology and the countries in the current index. Anyone tracking FRDM should monitor which countries comprise it — the list changes as freedom scores shift, and dramatic moves in and out of the index signal macroeconomic or political change. Compare FRDM’s returns to traditional emerging-market benchmarks (the MSCI Emerging Markets Index is the standard) and note the periods when it outperforms and underperforms; that tells you when political/governance risk matters most to the market. Watch, too, the fund’s sector mix: if FRDM becomes even more concentrated in tech as countries add or drop from the index, that is a risk to monitor. Expense ratios and trading volume matter as always — FRDM is liquid enough for most investors, but it is smaller than mega-cap EM funds, so wide spreads can hurt on entry and exit. The fund’s performance relative to peers in downturns is perhaps the real test of whether the freedom lens delivers what it promises.