Masters in Business

At The Money: Better Results By NOT Investing with Dictators!

January 14, 2026

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  • Traditional emerging market indexes are heavily weighted by market capitalization, leading to significant allocations in autocratic regimes like China, Russia, and Saudi Arabia, which can be detrimental to investor capital. 
  • The Freedom 100 EM Index (FRDM) addresses this by using a freedom-weighted methodology based on the Human Freedom Index (from the Cato and Fraser Institutes), which screens out or significantly underweights countries with poor political, civil, and economic freedoms. 
  • Excluding autocracies like Russia (which was entirely absent from FRDM before the Ukraine invasion) and heavily weighting companies based on state interests (as in China) is presented as a strategy to avoid significant capital destruction and capture growth in freer emerging markets. 

Segments

Problem with EM Indexing
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(00:00:58)
  • Key Takeaway: Emerging market indexes traditionally funnel capital to autocratic regimes due to market cap weighting.
  • Summary: Many problematic countries on the world stage have political behaviors unhealthy for investment dollars. Most emerging market indexes invest broadly across all countries regardless of political activity. This structure forces investors to fund authoritarian regimes, dictators, and bad actors that destroy capital.
Introducing Freedom Index
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  • Key Takeaway: Perth Toll created the Freedom 100 EM Index (FRDM) to avoid dangerous countries in emerging markets.
  • Summary: Perth Toll is the founder of the Life and Liberty Indexes and creator of the Freedom 100 EM Index (FRDM). This fund allows investors to gain emerging market exposure without steering money to the worst countries. The index has reportedly beaten the S&P 500 over one, two, and three years, including a 67% gain in 2025 versus the S&P 500’s 18%.
Defining Freedom Metrics
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(00:05:52)
  • Key Takeaway: Freedom weighting uses 87 variables from the Human Freedom Index covering civil, political, and economic freedoms.
  • Summary: Freedom is quantified using data from the Cato Institute and the Fraser Institute’s Human Freedom Index, which is privately funded. Metrics include civil freedoms (like freedom from terrorism), political freedoms (like freedom of speech), and economic freedoms (like taxation and property rights). These variables combine into a composite country score used to determine allocation weights.
Index Construction Methodology
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(00:07:54)
  • Key Takeaway: The index uses 100% freedom weighting at the country level after screening for market size and liquidity.
  • Summary: The initial universe starts with 24 emerging market countries, reduced to about 18 eligible countries after screening for size and liquidity (excluding places like the Czech Republic or Peru). Countries must score above average among peers to be included, and weighting is entirely based on freedom scores, not market cap. Within countries, the 10 largest, most liquid constituents are selected and market-cap weighted, excluding state-owned enterprises.
China Investment Risks
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(00:10:40)
  • Key Takeaway: Chinese companies prioritize state interests over shareholder value, leading to poor long-term investment performance.
  • Summary: Over the past 30 years (since 1995), China’s market total return (including dividends) is about 100%, vastly lagging the S&P 500’s 2,700% return. Chinese companies must put state interests first, meaning investors subsidize the cost of currying favor with the government. This subordination of business interests to state control, exemplified by data sharing like with WeChat, poses inherent dangers to foreign investors.
Autocracy Risk and Exclusion
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(00:14:14)
  • Key Takeaway: Excluding autocracies entirely, rather than just underweighting them, prevents funneling capital to regimes engaging in harmful international behavior.
  • Summary: Russia was never included in the FRDM index, protecting investors when its market plummeted to zero following the invasion of Ukraine, unlike MSCI indices where Russia was a top-10 holding. Underweighting autocracies still funnels money to them, which is contrary to the fund’s goal. The strategy focuses on finding growth opportunities in freer emerging markets like Chile and Poland, which are often underweighted in cap-weighted indices.