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Does "Freedom Weighting" Make a Better EM ETF?

Neena Mishra
  • (1:00) - Alpha Architect and Factor Investing
  • (4:10) - What is The Human Freedom Index
  • (7:00) - Alpha Architect Freedom 100 Emerging Markets ETF: FRDM
  • (11:25) - Factor Investing: What Criteria Do You Use For Value?
  • (13:45) - Alpha Architect U.S. Quantitative Value ETF: QVAL
  • (17:10) - Momentum Factor Investing: What Defines A Momentum Stock?
  • (19:45) - Alpha Architect U.S. Quantitative Momentum ETF: QMOM
  • (23:30) - Is Freedom An Investing Factor?
  • (26:10) - Episode Roundup: Podcast@Zacks.com

In this episode of ETF Spotlight, I speak with Perth Tolle, founder of Life + Liberty Indexes, and Jack Vogel, CIO at Alpha Architect.  

Alpha Architect is an asset management firm focused on factor investing. They recently launched the Freedom 100 Emerging Markets ETF FRDM which uses human and economic freedoms as primary factors in the investment selection process.

Factor investing is among the hottest trends in the ETF industry. The factor industry is estimated at $1.9 trillion and is projected to grow to $3.4 trillion by 2022, according to BlackRock. To kick off the podcast, Jack explains the basics of factor investing.

FRDM provides a unique way of investing in emerging markets. Perth explains why countries that treat their citizens better usually outperform over the long term. The index uses data provided by the Fraser Institute, Cato Institute, and Friedrich Naumann Foundation for calculating freedom scores.

While China and Hong Kong represent more than 30% of the portfolio in popular EM ETFs, FRDM excludes them. It also has no exposure to countries like Russia and Saudi Arabia that have poor freedom and human rights record.

Taiwan, South Korea and Chile get highest exposure in the index. Taiwan Semiconductor TSM, Samsung Electronics SSNLF and Naspers NPSNY are its top holdings. FRDM does have a small indirect exposure to Tencent TCEHY due to Nasper’s investment in the Chinese tech giant.

What kind of performance investors can expect from FRDM versus other broad EM ETFs?

We then discuss value investing. The Alpha Architect U.S. Quantitative Value ETF QVAL seeks to invest in cheapest, highest quality value stocks. Chip stocks like Applied Materials AMAT, Micron MU and Intel INTC, which have been beaten down due to trade tensions, are among its holdings.

Value has been underperforming growth for the past several years. Can value finally get its grove back?

The Alpha Architect U.S. Quantitative Momentum ETF QMOM screens for high momentum stocks on the “quality” of their momentum. Hot stocks like Trade Desk TTD, Okta OKTA and MongoDB MDB are among its holdings.

Are value and momentum complementary? Can a combination of these two strategies produce better risk adjusted returns than the broader indexes?

Find out on the podcast.

Make sure to be on the lookout for the next edition of ETF Spotlight! If you have any comments or questions, please email podcast@zacks.com.

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The Trade Desk Inc. (TTD) : Free Stock Analysis Report
Tencent Holding Ltd. (TCEHY) : Free Stock Analysis Report
Samsung Electronics Co. (SSNLF) : Free Stock Analysis Report
Alpha Architect U.S. Quantitative Value ETF (QVAL): ETF Research Reports
Alpha Architect U.S. Quantitative Momentum ETF (QMOM): ETF Research Reports
Intel Corporation (INTC) : Free Stock Analysis Report
Micron Technology, Inc. (MU) : Free Stock Analysis Report
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
MongoDB, Inc. (MDB) : Free Stock Analysis Report
Naspers Ltd. (NPSNY) : Free Stock Analysis Report
Okta, Inc. (OKTA) : Free Stock Analysis Report
FRDM-100 EM (FRDM): ETF Research Reports
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