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Perth Tolle on ETF Freedom Metrics · Masters in Business

• 0:02
  Speaker 1: This is Mesters in Business with Very Results on Bloomberg
• 0:06
  Speaker 1: Radio this weekend. On the podcast, I have an extra
• 0:12
  Speaker 1: special guest somebody I know for a long time. Perth
• 0:15
  Speaker 1: Toll is the founder of the Freedom et F, based
• 0:19
  Speaker 1: on an index that she helped to create, using metrics
• 0:24
  Speaker 1: designed to emphasize the economic and personal freedoms of different countries.
• 0:31
  Speaker 1: She'll tell us how she starts with a data set
• 0:34
  Speaker 1: up from various think tanks like Frasier and Cato that
• 0:38
  Speaker 1: rank countries based on their freedom indexes, and then proceeds
• 0:44
  Speaker 1: to put them through an algorithm that she helped to create.
• 0:47
  Speaker 1: And what you end up with is a list of
• 0:51
  Speaker 1: some of the most innovative free emerging market countries in
• 0:55
  Speaker 1: the world that also end up doing really well and
• 1:00
  Speaker 1: acted over the past couple of years. When you see
• 1:02
  Speaker 1: how poorly China has done, and obviously Russia's have seen
• 1:05
  Speaker 1: all its stocks go to zero. Uh, those have not
• 1:08
  Speaker 1: been in her funds, and so on a relative basis,
• 1:11
  Speaker 1: her fund has done really quite splendidly. You avoid some
• 1:15
  Speaker 1: of the worst countries in the world in a n
• 1:17
  Speaker 1: e M index, obviously you're gonna do well on an
• 1:19
  Speaker 1: absolute basis. They've done well. Also, just go punch in
• 1:22
  Speaker 1: f R d M and you can see how all
• 1:24
  Speaker 1: the fund has done over the past couple of years.
• 1:26
  Speaker 1: It's about two hundred million dollars in assets. It's just
• 1:29
  Speaker 1: turned three years old and just became a five star
• 1:34
  Speaker 1: Morning Star rank Mutual Funds. So really quite fascinating. If
• 1:37
  Speaker 1: you're at all interested in ETFs, emerging markets, or innovative
• 1:42
  Speaker 1: new ways to slicenseise the world of assets, I think
• 1:45
  Speaker 1: you're gonna find this to be a fascinating conversation. So,
• 1:48
  Speaker 1: with no further ado, my interview with Perth Toll. This
• 1:55
  Speaker 1: is Masters in Business with Very Results on Bluebird Radio.
• 2:01
  Speaker 1: I'm Barry Retults. You're listening to Masters in Business on
• 2:05
  Speaker 1: Bloomberg Radio. My extra special guest this week is so
• 2:08
  Speaker 1: what I've known for a long time. Perth Toll is
• 2:11
  Speaker 1: the founder of the Life and Liberty Indexes. She is
• 2:15
  Speaker 1: also the sponsor of the Freedom one hundred Emerging Markets
• 2:19
  Speaker 1: et F. It's a first of its kind strategy using
• 2:22
  Speaker 1: personal and economic freedom metrics as key factors in driving
• 2:26
  Speaker 1: the investing process. Perth has lived in Beijing and Hong Kong.
• 2:31
  Speaker 1: She currently lives in Texas. Uh and her experiences overseas
• 2:36
  Speaker 1: is what helped lead to the Freedom and Liberty Indexes.
• 2:41
  Speaker 1: Perth Toll, Welcome to Bloomberg. Thank you for having me, Barry.
• 2:44
  Speaker 1: I've been waiting to do your podcast for a very
• 2:47
  Speaker 1: long time and I honored to be here. I'm thrilled.
• 2:49
  Speaker 1: I'm thrilled to have you. So let's start with the
• 2:52
  Speaker 1: basic inspiration. I love the concept and it's amazing nobody
• 2:56
  Speaker 1: thought of this. But previous to you, what was the
• 2:59
  Speaker 1: inspiration shin for the Life and Liberty indexes? So the
• 3:03
  Speaker 1: seed for the idea was planted when I went back
• 3:06
  Speaker 1: and lived in Hong Kong after college. I was born
• 3:09
  Speaker 1: in Beijing, and I grew up in both China and
• 3:11
  Speaker 1: the US, um going back and forth between the two countries.
• 3:15
  Speaker 1: After college, I went and lived in Hong Kong for
• 3:17
  Speaker 1: about a year, reconnecting with my dad's side of the family.
• 3:21
  Speaker 1: And while I was there, I traveled to the mainland
• 3:24
  Speaker 1: to Beijing, Shanghai, shen Jin, um and I saw things
• 3:28
  Speaker 1: that um as a person who grew up in a
• 3:31
  Speaker 1: free society, mostly in my formative years, that shocked me
• 3:35
  Speaker 1: and I realized that my life would have been very
• 3:38
  Speaker 1: different had I stayed in China for my entire childhood
• 3:41
  Speaker 1: and as opposed to having come to the United States. UM.
• 3:45
  Speaker 1: So it made a difference in my life, and I
• 3:47
  Speaker 1: realized that it was freedom that made that difference. So
• 3:50
  Speaker 1: let's let's talk a little bit about both UM personal
• 3:54
  Speaker 1: and economic freedom. How do you use these metrics as
• 3:58
  Speaker 1: creating an index which the e t F is based on.
• 4:01
  Speaker 1: So the metrics that we use come from third party
• 4:04
  Speaker 1: think tanks, the Cato Institute and the Fraser Institute. And
• 4:07
  Speaker 1: this keeps all the all the metrics completely quantitative and independent.
• 4:11
  Speaker 1: So we think it's very important to have metrics that
• 4:14
  Speaker 1: are robust, that are independent, and that are quantitative. And
• 4:18
  Speaker 1: so the Cato and Fraser data set that has the
• 4:22
  Speaker 1: human Freedom metrics encompasses both personal and economic freedoms and
• 4:26
  Speaker 1: they rank a hundred and sixty five countries in the
• 4:29
  Speaker 1: world on these seventy nine different metrics. UM. We take
• 4:33
  Speaker 1: the twenty seven country Emerging Markets UM universe and just
• 4:38
  Speaker 1: look at those countries and those scores for those countries
• 4:41
  Speaker 1: based on the seventy nine metrics. Is the primary factor
• 4:45
  Speaker 1: that goes into our country waiting. All right, So you
• 4:47
  Speaker 1: have twenty seven E m countries. Uh, you're looking at
• 4:51
  Speaker 1: the freest ones in terms of economic freedom and personal liberty.
• 4:55
  Speaker 1: And then from that list, how do you go about
• 4:58
  Speaker 1: selecting the comp nice from within each country. Yeah, so
• 5:02
  Speaker 1: let me just run down the whole process just quickly
• 5:05
  Speaker 1: for you here. So, so, first we had those twenty
• 5:07
  Speaker 1: seven countries, and currently we're using the same country set
• 5:10
  Speaker 1: as m c I because most of our clients to
• 5:12
  Speaker 1: benchmark to M s I. Now we're not bound by
• 5:15
  Speaker 1: that though, so in the future we may add or
• 5:17
  Speaker 1: subtract certain countries from that universe right now is the
• 5:20
  Speaker 1: same as M s I. Uh. First, after we have
• 5:23
  Speaker 1: that universe, we look at which countries are actually big
• 5:27
  Speaker 1: enough and tradeable enough to be in an e t
• 5:30
  Speaker 1: F because this was always designed to be an ETF.
• 5:32
  Speaker 1: So you need liquidity and volume and the ability to
• 5:36
  Speaker 1: get money in and out of the country. Yes, so,
• 5:38
  Speaker 1: but mostly we're looking at the market cap of the
• 5:40
  Speaker 1: country here as a as a ratio to world market cap.
• 5:44
  Speaker 1: If you don't meet our minimum ratio, then you're out,
• 5:47
  Speaker 1: even if you're very free. So this actually eliminates very
• 5:50
  Speaker 1: free markets like Czech Republic, which is too small, um Peru,
• 5:54
  Speaker 1: which is not liquid enough, and it also eliminates some
• 5:56
  Speaker 1: very unfree markets like Egypt because of size. So we
• 6:00
  Speaker 1: have those eliminations based on market cap ratios UH. And
• 6:04
  Speaker 1: just to clarify, when you say size, you mean size
• 6:07
  Speaker 1: of the country, you mean size of the companies. The
• 6:09
  Speaker 1: market cap real the market cap, so you don't want
• 6:12
  Speaker 1: micro caps. So we want to keep it very liquid
• 6:16
  Speaker 1: and very tradable. So once we have those countries eliminated,
• 6:19
  Speaker 1: then we have about eighteen countries left in the eligible universe,
• 6:23
  Speaker 1: and these are the countries on which we apply the
• 6:26
  Speaker 1: freedom weights. It's a hundred percent freedom weighted. It's not
• 6:30
  Speaker 1: a it's not a tilt, and it's not in an overlay.
• 6:33
  Speaker 1: And the reason why we do that is because with
• 6:35
  Speaker 1: market capitalization waiting, which is the standard for most indexes,
• 6:39
  Speaker 1: including Emerging Markets UM, you end up with a lot
• 6:43
  Speaker 1: of autocracies with this universe. So the emerging markets universe
• 6:46
  Speaker 1: is filled with autocracies and countries just coming out of autocracy,
• 6:49
  Speaker 1: such as give us some examples like China, Russia, Saudi Arabia, Turkey, Egypt,
• 6:54
  Speaker 1: and so forth. So by freedom waiting instead of market
• 6:58
  Speaker 1: cap waiting, we're seeking to solve that problem of these
• 7:02
  Speaker 1: autocracy heavy concentrations in the emerging market space. And so
• 7:06
  Speaker 1: we created this for people who want to have that
• 7:09
  Speaker 1: exposure to emerging markets, people who always have either strategic
• 7:12
  Speaker 1: allocation or just always want that emerging markets exposure. UM,
• 7:16
  Speaker 1: but without funding autocracies. So there's no we've never had
• 7:20
  Speaker 1: any China, Russia, Saudi Arabia, Turkey and so forth because
• 7:24
  Speaker 1: of freedom waiting, not because we you know, arbitrarily excluded
• 7:28
  Speaker 1: in any country, but it's just a natural result of
• 7:30
  Speaker 1: that freedom waiting. So you have the set of twenty
• 7:33
  Speaker 1: seven countries in MSCI that gets reduced to eighteen by size,
• 7:37
  Speaker 1: and there's got to be thousands of potential companies win
• 7:40
  Speaker 1: those eighteen countries. But do you select and how do
• 7:43
  Speaker 1: you get there? So the most important part once we
• 7:46
  Speaker 1: have those eighteen, we do freedom weight those eighteen countries.
• 7:49
  Speaker 1: As part of that process, the worst offenders are excluded,
• 7:52
  Speaker 1: so the lowest scores are excluded out of this in
• 7:55
  Speaker 1: this process and the best of those eighteen and typically
• 7:58
  Speaker 1: it's between ten and eleven country are included in the index.
• 8:02
  Speaker 1: And that is a completely objective process. UM. That's rule space.
• 8:06
  Speaker 1: And I you know, my subject of opinion doesn't factor
• 8:10
  Speaker 1: into that at all. So now you're down to ten
• 8:11
  Speaker 1: or eleven countries, how do you take? How many companies
• 8:15
  Speaker 1: do you take from each of those countries? Yeah, so
• 8:18
  Speaker 1: we take the top ten largest most liquid companies in
• 8:21
  Speaker 1: each country that is not a state owned enterprise. And
• 8:25
  Speaker 1: that's the only thing that we do on the security level.
• 8:28
  Speaker 1: So we're just taking the largest most liquid companies that
• 8:31
  Speaker 1: are non state owned UM. And the reason why we
• 8:33
  Speaker 1: didn't add any additional factors so that obviously I work
• 8:36
  Speaker 1: with a lot of UM factor people UM, and the
• 8:39
  Speaker 1: reason why we didn't add factors to that is because
• 8:41
  Speaker 1: we wanted to isolate the freedom factor for this product.
• 8:45
  Speaker 1: It's our first e t F. It's the first Emerging
• 8:48
  Speaker 1: Markets e t F in the world that uses freedom waiting,
• 8:51
  Speaker 1: and so we wanted to see if there was a
• 8:52
  Speaker 1: market for this type of product and see how I
• 8:55
  Speaker 1: would go UM and we're very happy with the results. Yes,
• 8:57
  Speaker 1: so you end up with companies more or less, and
• 9:02
  Speaker 1: that's that's what's in the t F. Yes. So currently
• 9:04
  Speaker 1: there's eleven countries and there's a hundred and ten securities
• 9:07
  Speaker 1: in the e t F. In the previous two years,
• 9:09
  Speaker 1: there's been a hundred securities and ten countries, and that's
• 9:12
  Speaker 1: why it was called the Freedom one hundred. And the
• 9:15
  Speaker 1: index has been outperforming pretty dramatically over the past a
• 9:19
  Speaker 1: couple of years, in part because China seemed to have
• 9:23
  Speaker 1: imployed itself going after their own their own senior tech
• 9:26
  Speaker 1: people will talk about that later. And obviously Russia was
• 9:30
  Speaker 1: just a debacle. You sidestepped all of those because none
• 9:33
  Speaker 1: of those countries are in the index. Yes, and again
• 9:36
  Speaker 1: we don't arbitrarily exclude China or Russia. We didn't have
• 9:40
  Speaker 1: them in there any of this time because of the
• 9:42
  Speaker 1: it's a natural result of that freedom waiting. So freedom
• 9:45
  Speaker 1: waiting in this case worked very well and it was
• 9:48
  Speaker 1: a very effective leading indicator of some of these tail
• 9:52
  Speaker 1: risks that investors in these cap weighted index has experienced.
• 9:55
  Speaker 1: And if I recall, the E t F symbol is
• 9:58
  Speaker 1: f R d M for freedom. Is that right? Yes?
• 10:01
  Speaker 1: Very interesting. So let's let's talk a little bit about
• 10:03
  Speaker 1: the world of ETFs. First, Y and E t F
• 10:06
  Speaker 1: instead of a mutual fund. What was behind the thinking
• 10:10
  Speaker 1: of going that way, especially given your background. You were
• 10:14
  Speaker 1: a fidelity for a long time, and they have been
• 10:16
  Speaker 1: giant in mutual funds for forever. Yeah. So so once
• 10:21
  Speaker 1: I came back from Hong Kong, I worked at Fidelity
• 10:23
  Speaker 1: Investments in the l A and Houston markets. UM, and
• 10:26
  Speaker 1: I was at Fidelity for about ten years as a
• 10:28
  Speaker 1: financial advisor, And you know, that's when I started noticing
• 10:33
  Speaker 1: the trend of the rise of indexing and the rise
• 10:38
  Speaker 1: of E t s and how beneficial the E t
• 10:41
  Speaker 1: F structure was for clients. I don't know of any
• 10:44
  Speaker 1: other investment vehicle or structure that is as beneficial tax
• 10:50
  Speaker 1: wise for clients, and so um and trade ability and everything.
• 10:55
  Speaker 1: So so I was always a fan of the E
• 10:58
  Speaker 1: t F structure. And when I created this, I always
• 11:01
  Speaker 1: intended for it to be an E t F. We
• 11:03
  Speaker 1: created the index before there was an E t F,
• 11:05
  Speaker 1: but I always intended, you know, it was always designed
• 11:08
  Speaker 1: to be an E t F R. The old joke
• 11:10
  Speaker 1: was of mutual funds were invented today, they wouldn't be
• 11:13
  Speaker 1: able to get approved because they're so inefficient. They trade
• 11:16
  Speaker 1: at the end of the day and you end up
• 11:18
  Speaker 1: paying taxes on other people who sold, as opposed to
• 11:23
  Speaker 1: you paying taxes when you sell the holdings. I mean
• 11:26
  Speaker 1: the trading at the end of the day is not
• 11:27
  Speaker 1: as big of a problem because most of our investors
• 11:29
  Speaker 1: are long term. But UM, that tax efficiency is just
• 11:33
  Speaker 1: so hard to beat in any other type of vehicle.
• 11:36
  Speaker 1: So who are your investors? Do you have any idea
• 11:38
  Speaker 1: who owns cts? So right now, UM, we have about
• 11:41
  Speaker 1: two million under assets and so it's just beginning to
• 11:46
  Speaker 1: be big enough to get noticed by institutions. We're getting
• 11:48
  Speaker 1: more institutional request at this time. We just had UM
• 11:52
  Speaker 1: a family office demand that we get approved on Morgan
• 11:56
  Speaker 1: Stanley and they just approved us. UM. So we've been
• 11:59
  Speaker 1: approved on a lot more platforms lately because of the
• 12:01
  Speaker 1: size UM and also the three year track record and
• 12:04
  Speaker 1: the five star morning Star rating. Now, also that's one
• 12:07
  Speaker 1: of my questions for later. But since you brought it up,
• 12:10
  Speaker 1: you just got a five star rating on I mean,
• 12:13
  Speaker 1: this was last month. I shouldn't let you bring that up. Yeah,
• 12:17
  Speaker 1: well it's I was. It's coming up later, but since
• 12:19
  Speaker 1: you mentioned it, we might as well talking about now. Yeah, no,
• 12:21
  Speaker 1: and you know what Morning Star ratings come and go,
• 12:24
  Speaker 1: and I, UM, that was a surprise to me because
• 12:28
  Speaker 1: well I guess it wasn't a surprise because it right,
• 12:31
  Speaker 1: So it just happens at three years thirty six full months,
• 12:35
  Speaker 1: and it's based on performance, So I guess it wasn't
• 12:37
  Speaker 1: that much of a surprise. But um, you know what
• 12:40
  Speaker 1: I really appreciate about that is that I didn't expect this,
• 12:43
  Speaker 1: this uh strategy to play out, um the thesis to
• 12:48
  Speaker 1: play out this well, this quickly, and for it to
• 12:51
  Speaker 1: have done that in this exact three year period of
• 12:54
  Speaker 1: time when the morning Stars come out, Um, just all
• 12:57
  Speaker 1: the stars had to align for that to happen. We yeah,
• 13:00
  Speaker 1: and we all know how hard it is to get
• 13:03
  Speaker 1: five star morning Star rating, and so for us to
• 13:05
  Speaker 1: have that right out of the gate, I'm very grateful
• 13:08
  Speaker 1: for that. And I don't take much credit because a
• 13:10
  Speaker 1: lot of that is stuff out of my control. You know,
• 13:13
  Speaker 1: we can't control the market, so um, geopolitics or who's
• 13:17
  Speaker 1: going to invade what country? All these things. Sometimes you know,
• 13:21
  Speaker 1: it doesn't hurt to be smart, but being lucky goes
• 13:24
  Speaker 1: a long way. Yeah, I mean, I think we were
• 13:26
  Speaker 1: set up well just because freedom waiting. Obviously, it's the
• 13:30
  Speaker 1: reason why we didn't have any China or any Russia,
• 13:32
  Speaker 1: and that that helped us tremendously in our investors to
• 13:34
  Speaker 1: avoid that risk. So so here's the question, and pardon
• 13:38
  Speaker 1: my naivete, but the fund has been doing really well.
• 13:42
  Speaker 1: Geopolitical events have worked out perfectly um for for the
• 13:47
  Speaker 1: Freedom ETF. But go back in any decade in history
• 13:52
  Speaker 1: and there are very similar bad actions by bad actors, autocrats, dictates,
• 14:00
  Speaker 1: all sorts of um other folks. The question, and I
• 14:05
  Speaker 1: don't know if there's an answer to this. The question
• 14:07
  Speaker 1: I want to ask is how come nobody ever thought
• 14:10
  Speaker 1: of this? I mean, it's one of those ideas that
• 14:12
  Speaker 1: in hindsight is like, oh, of course you pull out
• 14:15
  Speaker 1: the worst players in the geopolitical world. Of course your
• 14:19
  Speaker 1: performance is going to be better. Has anyone ever explored
• 14:22
  Speaker 1: this idea before? You know what I would think? So, um, actually,
• 14:26
  Speaker 1: you know my friend Rob are not who isn't one
• 14:31
  Speaker 1: of our investors, And I first I think I introduce you,
• 14:35
  Speaker 1: you know what, you always say that, but on your podcast,
• 14:37
  Speaker 1: I'm going to say I met him on the seaplane.
• 14:39
  Speaker 1: That's right, flying into, flying into that's exactly right. So
• 14:44
  Speaker 1: when I left Idelity, and I started doing this very slowly,
• 14:47
  Speaker 1: I called research affiliates and I was like, hey, you know,
• 14:49
  Speaker 1: you guys do non cap weighted indexing. We we want
• 14:52
  Speaker 1: to do non cap weighted as indexing. Do you want
• 14:54
  Speaker 1: to work together? And they were like, no, please go.
• 14:56
  Speaker 1: I couldn't. I couldn't get past the first gatekeeper UM.
• 14:58
  Speaker 1: And then when I went to to Camp Ko talk
• 15:02
  Speaker 1: is because I was on a panel with David Kotok,
• 15:04
  Speaker 1: Black Rock and Morning Star for a cf A Society's
• 15:08
  Speaker 1: UM forecast panel that first year. I had no idea
• 15:11
  Speaker 1: what I was doing at the time. And afterwards, you know,
• 15:14
  Speaker 1: David invited me to this camp and I was like,
• 15:15
  Speaker 1: what is this. It's like fifty economists that go fishing
• 15:17
  Speaker 1: in the woods next to Canada for three days with
• 15:20
  Speaker 1: no WiFi. And actually my friend said you should go
• 15:25
  Speaker 1: because Barry rid Holes goes to that camp. Yeah, it
• 15:28
  Speaker 1: was Christian Magoon and Amplify who said Barry rid Holes
• 15:31
  Speaker 1: goes to that camp. You should go and you can
• 15:33
  Speaker 1: meet Barry. And so you are partly responsible for me
• 15:36
  Speaker 1: going that year in more than one reason. And you're
• 15:39
  Speaker 1: also responsible for Rob going that year because he lost
• 15:44
  Speaker 1: the bet and he had to he went to pay
• 15:47
  Speaker 1: that bet. He doesn't go every year, you know, you know,
• 15:49
  Speaker 1: he hasn't been back since and before that he was
• 15:51
  Speaker 1: there maybe five to seven years prior, took advantage of me.
• 15:54
  Speaker 1: I was very very drunk when he when he said
• 15:57
  Speaker 1: let's make a bet, and I'm like, it was an
• 16:00
  Speaker 1: out of body experience. I watched my right hand should
• 16:04
  Speaker 1: go up and shake his hands and the back of
• 16:06
  Speaker 1: my brain was, what the hell are you doing, you idiot.
• 16:09
  Speaker 1: That's a lot of money and he decides to show
• 16:11
  Speaker 1: it with a brick of cash. It was wasn't even
• 16:14
  Speaker 1: a check. It's like whack. It's pretty pretty hilarious. So yeah,
• 16:18
  Speaker 1: so that's a funny coincidence. So I vaguely remember introducing
• 16:23
  Speaker 1: you to Rob out on that deck, not realizing you
• 16:27
  Speaker 1: guys flew in together. Yes, we flew in on the
• 16:29
  Speaker 1: on the seaplane because I call the seaplane company the
• 16:31
  Speaker 1: day I was coming in and I was like, I'm
• 16:33
  Speaker 1: coming in from LaGuardia today. Is it too late to
• 16:35
  Speaker 1: get a seaplane? And they said, no, you can share
• 16:36
  Speaker 1: with Rob or not. Here's his flight number. Just go
• 16:39
  Speaker 1: intercept him at the airport and I did, and I
• 16:41
  Speaker 1: was like like that. Yeah. I was like, hey, did
• 16:43
  Speaker 1: they tell you were gonna be writing together? And and
• 16:45
  Speaker 1: that's how we met. He heard the idea. UM, you
• 16:48
  Speaker 1: pitched him on the plane. Then it's loud and buzzy
• 16:51
  Speaker 1: and you're literally you have those heads five feet over
• 16:54
  Speaker 1: the swamp, your moose and stuff running. I believe he
• 16:58
  Speaker 1: asked what I do? So okay? So it was an
• 17:02
  Speaker 1: lf field, So he was. He was one of your
• 17:04
  Speaker 1: earliest investors, the first one he invested after camping into
• 17:08
  Speaker 1: the into the company, not as an investor investor that too.
• 17:12
  Speaker 1: So after camp he committed to being the first investor
• 17:15
  Speaker 1: in the at the time non existent fund. And then
• 17:19
  Speaker 1: a while later is when I found out I would
• 17:21
  Speaker 1: have to launch the fund myself instead of just you know,
• 17:23
  Speaker 1: licensing the index. And that's when he became a g
• 17:25
  Speaker 1: P LP investor. So who else when you say you
• 17:29
  Speaker 1: have to launch the fund yourself, aren't you running this
• 17:31
  Speaker 1: with another group that helps manage. Yes. So my initial
• 17:36
  Speaker 1: plan after I had the index, and this is when
• 17:38
  Speaker 1: I met him and you at camp KO talk and
• 17:40
  Speaker 1: there wasn't a fund yet, UM was to license the index.
• 17:44
  Speaker 1: Who like I shares or vamp or someone UM. I
• 17:47
  Speaker 1: talked to I shares, They didn't want it. I talked
• 17:49
  Speaker 1: to everyone and no one wanted it. So eventually I
• 17:52
  Speaker 1: just had to launch it on my own um and
• 17:55
  Speaker 1: that's when I said, okay, I'll need to raise funds
• 17:56
  Speaker 1: because the operating costs for an e t f R
• 17:58
  Speaker 1: and no, it's not in substant ential, it's it's between
• 18:01
  Speaker 1: legal and compliance and regulatory filings, and you know, it's
• 18:04
  Speaker 1: a quarter million to a half a million dollars. Well,
• 18:07
  Speaker 1: in addition to that, in emerging markets, we actually give
• 18:10
  Speaker 1: you access to local shares on local exchanges. So we
• 18:13
  Speaker 1: paid the custody costs of giving you that access to
• 18:17
  Speaker 1: give you that market um exposure, and that's one of
• 18:21
  Speaker 1: the things I'm very proud of and very proud to
• 18:23
  Speaker 1: pay on behalf of my clients. So um so that
• 18:27
  Speaker 1: that's even more expensive for emerging markets. So we had
• 18:30
  Speaker 1: to raise funds for that, and I ended up, you know,
• 18:32
  Speaker 1: as you know, working with et F Architect prior they
• 18:35
  Speaker 1: were called alf Architect at the time, and their first
• 18:37
  Speaker 1: white label clients, West Gray and the whole crew over there,
• 18:40
  Speaker 1: that that they're actually a really good group of guys
• 18:44
  Speaker 1: and smartest can be. You did introduce me to West Gray,
• 18:47
  Speaker 1: as I recall, h So, alright, listen, I'm not looking
• 18:51
  Speaker 1: for a commission on any of this. It was just
• 18:55
  Speaker 1: I find West of stuff to be fascinating. He's an
• 18:58
  Speaker 1: interesting guy, a marine captain slash quant just such an
• 19:03
  Speaker 1: unusual background, you know, and and then do really good work.
• 19:06
  Speaker 1: I didn't realize they changed their name from Alpha Architect
• 19:10
  Speaker 1: to EAT. No, they didn't change their name. They have
• 19:12
  Speaker 1: they separated the entities. Oh, so you have E. T.
• 19:14
  Speaker 1: F Architect as one group. That makes sense in an
• 19:16
  Speaker 1: Alpha Architect as a as another group. Will say say
• 19:19
  Speaker 1: hello to West for me. UM, I really like him
• 19:22
  Speaker 1: and his crew. So we went over twenty seven countries
• 19:26
  Speaker 1: down to eighteen, down to ten or eleven UM and
• 19:30
  Speaker 1: ten most liquid companies within each UH within each country.
• 19:36
  Speaker 1: How about rebalancing? How do you go about over the
• 19:40
  Speaker 1: course of the year keeping things in in line with
• 19:43
  Speaker 1: the original balancing? And then how often do you make
• 19:46
  Speaker 1: changes in the index? Yeah, so we rebalanced once a year,
• 19:50
  Speaker 1: because the human rights data comes out once a year,
• 19:52
  Speaker 1: so the Personal and Economic Freedom data UM, and it
• 19:55
  Speaker 1: comes out around the end of the year. So we
• 19:57
  Speaker 1: rebalanced the third Friday in January UM and then we
• 20:01
  Speaker 1: leave it until the next year. If something happens in between,
• 20:04
  Speaker 1: we don't respond to it. Immediately and we have to
• 20:08
  Speaker 1: wait till rebalance um. There is a rule that, uh
• 20:12
  Speaker 1: if if if country falls more than five points on
• 20:16
  Speaker 1: one of our skills, that we do kick it out,
• 20:19
  Speaker 1: even if it's already in the index. But we do
• 20:21
  Speaker 1: that a rebalance time. So there's a basically it's a
• 20:24
  Speaker 1: freedom decline momentum role. And the reason why we do
• 20:27
  Speaker 1: that is we found that freedom. When it increases, it
• 20:31
  Speaker 1: does so gradually, and when it decreases, it does so
• 20:34
  Speaker 1: very quickly, and so we don't want to be catching
• 20:36
  Speaker 1: that falling knife, so to speak. The only country that's
• 20:39
  Speaker 1: ever triggered that it was Turkey, and that's before the
• 20:43
  Speaker 1: e t F existed. It was when it was just
• 20:44
  Speaker 1: the index, and that was in two thousand eighteen rebalance
• 20:47
  Speaker 1: um and it was because they found more than five
• 20:49
  Speaker 1: points on the previous year's scales and they've never made
• 20:53
  Speaker 1: it back into the index. Sense. So hypothetically, if pre
• 20:56
  Speaker 1: ordawan Turkey is in your holding and then someone comes
• 21:01
  Speaker 1: in who's an autocrat who removes a democratic um election
• 21:06
  Speaker 1: rules and and imprisons his political opponents, they could end
• 21:10
  Speaker 1: up staying in the index for the balance of the year.
• 21:14
  Speaker 1: Or if it plummets that five percent, you kick him
• 21:17
  Speaker 1: right out. They would end up staying in there until
• 21:20
  Speaker 1: the rebalanced time next year. And the reason part of
• 21:23
  Speaker 1: that is, yeah, there is a lag in there. But
• 21:26
  Speaker 1: we found that these types of political changes do take
• 21:31
  Speaker 1: time to show up in markets, so it doesn't happen immediately.
• 21:34
  Speaker 1: If you've noticed, elections are very often mispriced for this reason. UM,
• 21:39
  Speaker 1: it takes a couple of years for these things to
• 21:41
  Speaker 1: show up. We I do the freedom meetings with our
• 21:44
  Speaker 1: econometricians at the think tanks every year, and one year
• 21:48
  Speaker 1: UM I was there with the Polish UH delegate from
• 21:51
  Speaker 1: the Polish think tank that works with our freedom guys
• 21:55
  Speaker 1: and UM and this was right before the p I
• 21:57
  Speaker 1: S government gone too power, if you'll recall um and
• 22:00
  Speaker 1: they said, okay, we're about to be like this ultra
• 22:03
  Speaker 1: right wing kind of crazy government and they're going to
• 22:06
  Speaker 1: have constitutional majority probably, but it won't show up in
• 22:10
  Speaker 1: the markets for a couple of years. And it happened
• 22:12
  Speaker 1: just as he said. Poland was still the best performing
• 22:15
  Speaker 1: market in two thousand seventeen. In two thousand eighteen, they
• 22:18
  Speaker 1: fell to number four from number one in our index
• 22:21
  Speaker 1: UM and they've stayed basically in the middle sense. UM.
• 22:25
  Speaker 1: But now you know, they're taking a lot of steps
• 22:27
  Speaker 1: to support Ukraine in their in their stand for freedom.
• 22:30
  Speaker 1: So I'm glad they're in there. I'm glad they're one
• 22:32
  Speaker 1: of the top four UM. But they did show that decline,
• 22:35
  Speaker 1: but not until a few years after that government came
• 22:37
  Speaker 1: into power. Because what happens is our data providers they
• 22:41
  Speaker 1: look at what's actually happening on the ground. They don't
• 22:44
  Speaker 1: just look at, okay, what we expect to happen. They're
• 22:46
  Speaker 1: not trying to predict the future. UM. We're not trying
• 22:48
  Speaker 1: to predict what countries are going to have the best
• 22:51
  Speaker 1: freedom momentum upwards. UM. We catch it on the downwards,
• 22:54
  Speaker 1: but not upwards, because we can't predict the future. If
• 22:57
  Speaker 1: we were to do that, we would have invested in Argentina,
• 22:59
  Speaker 1: if you years ago, UM, or some of the worst countries,
• 23:02
  Speaker 1: because they have the best kind of UM trajectory like
• 23:06
  Speaker 1: expected improvement possibilities. UM. So we don't do that. We
• 23:10
  Speaker 1: take the absolute freedom level at the time of measurement
• 23:13
  Speaker 1: UM relative to their peers, and there's no you know,
• 23:16
  Speaker 1: there's no a hundred percent free market and there's no
• 23:18
  Speaker 1: percent on free market. Um, it's all a gray zone,
• 23:22
  Speaker 1: and so it's just relative to your peers. You know.
• 23:25
  Speaker 1: When we just take the freest countries, all of these
• 23:28
  Speaker 1: countries have problems, even the developed markets, even the United States.
• 23:31
  Speaker 1: We're not free here obviously. So all countries have their issues, um,
• 23:36
  Speaker 1: and we just try to pick the ones that have
• 23:38
  Speaker 1: the strongest institutions, best role of law, best individual and
• 23:42
  Speaker 1: investor protections, private property rights, intellectual property rights, things like that,
• 23:47
  Speaker 1: and just make sure we're giving our our investors the
• 23:50
  Speaker 1: you know, exposures that are the freest of that universe.
• 23:54
  Speaker 1: Let's talk a little bit about what's been going on
• 23:56
  Speaker 1: in China and in Russia. Starting with China began cracking
• 24:01
  Speaker 1: down on some of its tech leaders and technology companies
• 24:05
  Speaker 1: a couple of years ago, and it was really surprising
• 24:10
  Speaker 1: to see your government really start bashing their own economic leaders.
• 24:15
  Speaker 1: When you're looking at that from a distance, you have
• 24:18
  Speaker 1: to be thinking, well, I'm glad I don't have these
• 24:21
  Speaker 1: guys in my index. You know what. It's it's a
• 24:24
  Speaker 1: bittersweet thing, because yeah, it's it's a it's good that
• 24:27
  Speaker 1: we didn't have them in there, but it's terrible thing.
• 24:29
  Speaker 1: What's happening because you know, being from China, I want
• 24:32
  Speaker 1: China to to succeed. I want them to be free
• 24:34
  Speaker 1: UM eventually. And I you know a lot of people
• 24:38
  Speaker 1: like myself years ago thought that we were on that
• 24:40
  Speaker 1: trajectory because China increased in their freedom levels a lot
• 24:45
  Speaker 1: UM in the last couple of decades. You know, they
• 24:47
  Speaker 1: went from abysmal policies under Mao too not so bad policies.
• 24:51
  Speaker 1: They opened up economically and UM you know, had great
• 24:54
  Speaker 1: success there and their GDP grew tremendously and that was
• 24:57
  Speaker 1: very real growth people lifting themselves, was up out of
• 25:01
  Speaker 1: poverty UM and very powerful UM growth story. But now
• 25:06
  Speaker 1: grows story of the past because they are that growth
• 25:09
  Speaker 1: story of the past. You don't think there's a lot
• 25:11
  Speaker 1: of growth exactly what you just mentioned. So you know,
• 25:13
  Speaker 1: they're the star sectors like tech or we're being are
• 25:17
  Speaker 1: now being cracked down on UM jimping has consolidated power
• 25:21
  Speaker 1: is continuing to UM DIC. Yeah there's em peripheral life
• 25:27
  Speaker 1: and uh and yeah, there's no room for any discent.
• 25:30
  Speaker 1: You saw what happened in Hong Kong. Just the just
• 25:32
  Speaker 1: the idea of any discent UM. What about Jack ma
• 25:36
  Speaker 1: and you look at all the companies he's affiliated with.
• 25:38
  Speaker 1: So it all started with and Financial when that was scrapped.
• 25:42
  Speaker 1: And then Jack Ma disappeared after he said something that
• 25:46
  Speaker 1: wasn't kosher and criticized you know, just you know it
• 25:50
  Speaker 1: was actually very I think, but nine what he said. Um,
• 25:53
  Speaker 1: but he he criticized the government basically the way they
• 25:56
  Speaker 1: handled the financial sector. And you know here in the
• 26:00
  Speaker 1: Knitted States we do that every day. Look at us
• 26:01
  Speaker 1: on Twitter, I mean yeah. And so so the fact
• 26:05
  Speaker 1: that that even that was enough to you know, basically
• 26:09
  Speaker 1: disappear him. Him being a very visible persona in the
• 26:15
  Speaker 1: exactly and you know, just just a very character charismatic
• 26:20
  Speaker 1: and well loved, well looked up to guy. And uh,
• 26:24
  Speaker 1: you know when he disappeared, I think a lot of
• 26:25
  Speaker 1: people realize, Wow, if if they could disappear your founder, um,
• 26:29
  Speaker 1: you know, you might have some risks there that we
• 26:31
  Speaker 1: didn't account for. Um. And then following that, all the
• 26:35
  Speaker 1: other tech leaders started, the CEO started stepping down or
• 26:39
  Speaker 1: um pledging a ton of money for Common Prosperity, which
• 26:44
  Speaker 1: is one of their you know, new initiatives, and uh
• 26:47
  Speaker 1: that you know that money came from shareholder pockets and
• 26:50
  Speaker 1: it's basically a bribe. It's not going to common prosperity. UM,
• 26:54
  Speaker 1: it's just to keep the government happy. And so every
• 26:56
  Speaker 1: company in China now is required to have ammunist cell
• 27:01
  Speaker 1: member and you know as part of their their company, UM,
• 27:04
  Speaker 1: all the funds are now required to have UM communist leader. Uh.
• 27:09
  Speaker 1: Kind of it's like the old mob bosses with y hey,
• 27:13
  Speaker 1: Freddy's gonna show up and he's gonna make sure everything's
• 27:16
  Speaker 1: done right. It does have that feel to it. So
• 27:18
  Speaker 1: so this is very scary actually for someone who I mean,
• 27:21
  Speaker 1: I roote for China. I want them to succeed. I
• 27:23
  Speaker 1: know I thought they were going to be much more
• 27:26
  Speaker 1: successful at this point. But that's you know, the one
• 27:29
  Speaker 1: problem is they're reversing these policies and going back to
• 27:34
  Speaker 1: very uh unfree even economically policies. Um. The the other
• 27:38
  Speaker 1: problem is the demographics. So the one child policy for
• 27:42
  Speaker 1: a long time. Right by the way, there's there is
• 27:44
  Speaker 1: a lot of UM literature and analysis and even books
• 27:49
  Speaker 1: written about how China effectuated the one child policy. Yeah,
• 27:54
  Speaker 1: so the one child policy led to thirty million missing
• 27:57
  Speaker 1: women in China. That's that's official Chinese think tank estimates,
• 28:02
  Speaker 1: some others have it as more than twice that um.
• 28:06
  Speaker 1: And this is a hard issue for me because when
• 28:08
  Speaker 1: I went to China um And as I mentioned, I
• 28:10
  Speaker 1: traveled to Shanghai to Beijing. UM. I was twenty three
• 28:13
  Speaker 1: at the time, and I yeah, I had a friend
• 28:16
  Speaker 1: in Shanghai. Her name was Maggie. She was exact same
• 28:19
  Speaker 1: age as me, just like all of my American friends
• 28:21
  Speaker 1: in every way, um, except she didn't exist on paper.
• 28:24
  Speaker 1: She was one of what's called black children who um
• 28:28
  Speaker 1: I went to school under a fake surname, was a
• 28:31
  Speaker 1: second child, and her parents chose to to register her
• 28:35
  Speaker 1: brother for existence. Basically so um so no school records,
• 28:39
  Speaker 1: no hospital records, no um no state benefits. So it
• 28:44
  Speaker 1: was basically you know everything else. And and that's when
• 28:46
  Speaker 1: I realized, Wow, that could have been me. She was
• 28:49
  Speaker 1: the exact same as me in every other way and
• 28:52
  Speaker 1: so um so that that affected me in a profound way.
• 28:56
  Speaker 1: And also this policy affected our generation in a profound way.
• 28:59
  Speaker 1: Not only are there pretaty million missing women, there's thirty
• 29:02
  Speaker 1: million men who had no prospect of getting married or
• 29:07
  Speaker 1: finding a wife. And what do you do when you
• 29:09
  Speaker 1: have no prospect of ever, you know, having a family
• 29:14
  Speaker 1: join the military, and so that led to a huge
• 29:17
  Speaker 1: military build up in China as well. And so, um,
• 29:20
  Speaker 1: this is a policy that made me realize, Okay, so
• 29:23
  Speaker 1: policies matter, governance matters, um, and these types of things
• 29:26
  Speaker 1: have a huge impact on the future of a country,
• 29:30
  Speaker 1: in a society and an economy. Um. And so that's
• 29:33
  Speaker 1: actually what led me to start exploring these relationships speached
• 29:37
  Speaker 1: in the market. So it's funny you said governance matters.
• 29:40
  Speaker 1: I was discussing when we finally managed to book you
• 29:44
  Speaker 1: for the for the podcast. I was discussing this with
• 29:48
  Speaker 1: I won't mention their name, but we both know them,
• 29:51
  Speaker 1: and they said, well, how is what China is doing
• 29:54
  Speaker 1: to their tech sector any different than what Trump did
• 29:57
  Speaker 1: after he got elected? And I always find it weird
• 30:00
  Speaker 1: when I'm in a position of having to defend President Trump.
• 30:03
  Speaker 1: It's like, hey, you can't compare obnoxious tweets trashing a
• 30:09
  Speaker 1: company with actual government policies that forced companies to pay
• 30:16
  Speaker 1: a corrupt tax, have people added to their boards by force,
• 30:20
  Speaker 1: disregard the rule of law, sanctity of contracts, sanctity of
• 30:25
  Speaker 1: private property. As as crazy as the Trump era was,
• 30:30
  Speaker 1: it was a lot of noise at least until January six.
• 30:33
  Speaker 1: But I mean during the Trump administration, it was more
• 30:35
  Speaker 1: noise than actual policies such as we've seen in China. Yeah,
• 30:41
  Speaker 1: I think there's a few differences there now. For first,
• 30:43
  Speaker 1: I don't know who you're talking about, actually, but but
• 30:46
  Speaker 1: I want to say they have a point in that
• 30:48
  Speaker 1: every country has these issues, and it's just a different degrees, right,
• 30:52
  Speaker 1: So we may have had it. You know, we have
• 30:54
  Speaker 1: regulations that effect how our companies operate here Trump or
• 30:58
  Speaker 1: no Trump, And there's a certain degree of government interference
• 31:02
  Speaker 1: in private markets everywhere. Um So, so it does happen everywhere.
• 31:06
  Speaker 1: You know, we happen to be one of the least worst,
• 31:09
  Speaker 1: I think in the United States. Um and in China. Yeah,
• 31:12
  Speaker 1: it's very different. One reason is you can't push back
• 31:14
  Speaker 1: against it. So here, you see any kind of policy
• 31:18
  Speaker 1: going into place that people don't like, there's a huge
• 31:21
  Speaker 1: amount of pushback. You look at though, the protests post
• 31:24
  Speaker 1: Supreme Court overturning Roe v. Wade. If that had happened,
• 31:28
  Speaker 1: you can't do that if that happened China. Do you
• 31:29
  Speaker 1: think people could protest the one child policy in China? No.
• 31:33
  Speaker 1: Do you think they could protest when I went to
• 31:34
  Speaker 1: to child and they're like, why did you make me
• 31:36
  Speaker 1: only have one child? You know? And when I went
• 31:38
  Speaker 1: to three child, no, nobody could protest that. In fact,
• 31:41
  Speaker 1: it would. You would be prosecuted for protesting. You would
• 31:45
  Speaker 1: be disappeared. So I can't launch a fund like this
• 31:48
  Speaker 1: in Hong Kong. I mean I would be arrested because
• 31:51
  Speaker 1: of national security law. So the institutions in place right
• 31:57
  Speaker 1: are important for pushing back. For checks and balances, it
• 32:00
  Speaker 1: has to be a plurality of political parties, there has
• 32:03
  Speaker 1: to be a system of checks and balances, independent judiciary, UM.
• 32:07
  Speaker 1: There has to be a you know, uh, free media
• 32:11
  Speaker 1: as a force to keep government accountable. And so these
• 32:15
  Speaker 1: are all things that we find in freer markets that
• 32:18
  Speaker 1: we don't see in the less free ones. So you
• 32:20
  Speaker 1: can have a crazy person in charge, but if you
• 32:23
  Speaker 1: have stronger institutions, if you have some checks and balances,
• 32:27
  Speaker 1: free press, that keeps you know, power um from getting
• 32:32
  Speaker 1: out of hand. So so let's talk just for a
• 32:35
  Speaker 1: moment about Russia. Obviously they've become an anathema given the
• 32:40
  Speaker 1: invasion of Ukraine, but even before that, you didn't have
• 32:44
  Speaker 1: Russia in UM, the t F tell us the reasons
• 32:48
  Speaker 1: why a country like a Putin led Russia just doesn't
• 32:52
  Speaker 1: make it into a freedom index. Well, their their freedom
• 32:55
  Speaker 1: score from the think tanks was too low, and that's
• 32:57
  Speaker 1: why I didn't. How low is too low, so you
• 32:59
  Speaker 1: have to be higher than your peers. And our algorithm
• 33:04
  Speaker 1: assigns positive and negative weights. The negative weights are excluded,
• 33:07
  Speaker 1: so they were How low were they? Is what I'm
• 33:09
  Speaker 1: really getting to. So Russia ranks a six point to
• 33:13
  Speaker 1: three out of ten UM. As a comparison, Kuwait is
• 33:16
  Speaker 1: six point three four, India is six point three nine UM,
• 33:20
  Speaker 1: and then you get into included countries Philippines six point
• 33:22
  Speaker 1: eight three, Thailand six point eight nine, and so forth.
• 33:25
  Speaker 1: These are the kind of borderline countries. India is borderline
• 33:29
  Speaker 1: sometimes sometimes. Who are the top three in the bottom three?
• 33:32
  Speaker 1: So top three in emerging markets are Taiwan top one UM, Chile,
• 33:38
  Speaker 1: and South Korea currently, so South Korean Taiwan kind of
• 33:43
  Speaker 1: really no longer emerging markets, right, But you could say
• 33:45
  Speaker 1: the same about China, right, I mean, okay, well that
• 33:49
  Speaker 1: makes sense. And who are the bottom three? I can imagine, Yeah,
• 33:53
  Speaker 1: so bottom three in emerging markets Egypt, Saudi Arabia and China.
• 33:56
  Speaker 1: Saudi Arabia. Saudi Arabia ranks actually lower than China on
• 34:01
  Speaker 1: the overall score. It's five point one to China is
• 34:04
  Speaker 1: five point five seven um so and one fifty rank
• 34:09
  Speaker 1: out of one sixty countries in the world. So it
• 34:12
  Speaker 1: turns out that taking a bone saw to a journalist
• 34:15
  Speaker 1: and making him disappear isn't good for your freedom index. No,
• 34:20
  Speaker 1: they also have some women's freedom issues. Um, hey, they
• 34:23
  Speaker 1: can drive now, right, But in these kinds of markets,
• 34:28
  Speaker 1: in the free markets, you have to watch rhetoric versus
• 34:30
  Speaker 1: what actually happens on the correct um. A lot of
• 34:33
  Speaker 1: these reforms that NBS put into place, there was a
• 34:36
  Speaker 1: lot of hope in that country for BS to reform,
• 34:39
  Speaker 1: and you know, we had a lot of hope about
• 34:41
  Speaker 1: Egypt in the Arab Spring also before that all went
• 34:43
  Speaker 1: to hell and then you know, women were allowed to
• 34:45
  Speaker 1: drive all of a sudden. But at the same time
• 34:47
  Speaker 1: that the women were allowed to drive, they put four
• 34:52
  Speaker 1: women who had campaign for women to drive in jail.
• 34:55
  Speaker 1: One of them just was released, some of them are
• 34:57
  Speaker 1: still in jail. My friend uh manal al Sharif, who
• 35:02
  Speaker 1: is has been jailed for you know, UM campaigning for
• 35:07
  Speaker 1: women to drive in the past and is now exiled
• 35:09
  Speaker 1: in Australia. She did a whole women you know, women
• 35:13
  Speaker 1: to drive movement here in the United States at that
• 35:15
  Speaker 1: time to protest those women being in jail. So in
• 35:18
  Speaker 1: these countries you have to be very careful. There's always
• 35:20
  Speaker 1: rhetoric and there's always a big pr push to make
• 35:25
  Speaker 1: them seem like they're reforming when actually perhaps on the ground,
• 35:29
  Speaker 1: there's less of that going on in reality. Huh really
• 35:32
  Speaker 1: quite fascinating. We mentioned that you're now a five star
• 35:36
  Speaker 1: morning Star Funds, but when you were first rolled out
• 35:39
  Speaker 1: in the Index, was voted best New International Global E
• 35:45
  Speaker 1: t F and Index. Uh what made people so excited
• 35:49
  Speaker 1: about this theme back in Yeah, you know, that was
• 35:54
  Speaker 1: very a proud moment for us because that was voted
• 35:57
  Speaker 1: by UM, people in the t F and people in
• 36:00
  Speaker 1: the industry. Yeah. So first, you know, investors would put
• 36:03
  Speaker 1: in their kind of nominations and then a panel of
• 36:06
  Speaker 1: judges of E t F experts UM would vote and
• 36:10
  Speaker 1: so so I'm I'm very honored to have to have
• 36:13
  Speaker 1: that those awards. But I think what it was is
• 36:16
  Speaker 1: that UM intuitively investors. That's just understand that, you know,
• 36:20
  Speaker 1: freer countries have more sustainable growth, they recover faster from
• 36:24
  Speaker 1: draw downs, they use their capital more efficiently, whether it's personal, human,
• 36:28
  Speaker 1: or economic capital. So you know, capital goes where is
• 36:31
  Speaker 1: welcomed and where it's well treated. And that's Walter riskin
• 36:34
  Speaker 1: quote UM and capital is not just money, it's also
• 36:38
  Speaker 1: people and ideas. And you look at the capital outflows
• 36:41
  Speaker 1: coming from Russia right now, coming from Hong Kong UM
• 36:44
  Speaker 1: the millionaire exodus. There's I believe more millionaires per capita
• 36:48
  Speaker 1: coming out of Hong Kong than anywhere else at this
• 36:50
  Speaker 1: point UM and I think that just speaks to UM
• 36:54
  Speaker 1: the growth potential of the freer markets UM to be
• 36:58
  Speaker 1: the launch pads for growth in the next decade, so
• 37:01
  Speaker 1: especially in emerging markets where they're coming from this very
• 37:04
  Speaker 1: low base. So I think an emerging markets because there's
• 37:06
  Speaker 1: such a high concentration. And when we launched, I think
• 37:09
  Speaker 1: China weight was about and most emerging market Russia and
• 37:14
  Speaker 1: Saudi Arabia were in there. Right now, Russia's out, China's
• 37:17
  Speaker 1: down to like thirty, but it's still you know, kind
• 37:20
  Speaker 1: of a high concentration. Saudi Arabia is still in the
• 37:22
  Speaker 1: top ten. You still have Turkey, Egypt and all of
• 37:24
  Speaker 1: these others um so. So there's just a high concentration
• 37:28
  Speaker 1: of these autocracies. And I think people were at the
• 37:30
  Speaker 1: time saying, finally, there's a way to invest in emerging
• 37:34
  Speaker 1: markets without funding autocracies. Right. So it's not even e
• 37:38
  Speaker 1: m X China. It's e m X dictatorships. You're just
• 37:42
  Speaker 1: not participating in the worst It's very different from e
• 37:45
  Speaker 1: m X China. So X China just access China out
• 37:48
  Speaker 1: out of a market cap weighted index. It's not anything else.
• 37:52
  Speaker 1: It's just there is It's just an arbitrary exclusion, and
• 37:56
  Speaker 1: I think that's a band aid on a much deeper problem,
• 37:59
  Speaker 1: and it doesn't address the root issue, which is the
• 38:01
  Speaker 1: lack of freedom is the problem in China, not China itself.
• 38:04
  Speaker 1: So so you hinted at something with Hong Kong, and
• 38:06
  Speaker 1: I'm curious if you pay attention or track this in
• 38:09
  Speaker 1: any way. You mentioned the exodus of millionaires from Hong Kong.
• 38:14
  Speaker 1: I wonder what sort of brain drain takes place in
• 38:17
  Speaker 1: places like Hong Kong or China or Russia when the
• 38:22
  Speaker 1: country just takes a really bad turn in the wrong
• 38:25
  Speaker 1: direction and people finally say all right, no, Moss, I'm out. Yeah,
• 38:30
  Speaker 1: I mean I think that's a that's a pretty high
• 38:33
  Speaker 1: level of brain drain. I think without capital controls it
• 38:35
  Speaker 1: would be even higher. So these countries have those capital
• 38:38
  Speaker 1: controls for a reason. And how do you get capital
• 38:41
  Speaker 1: out of um countries like China or Hong Kong other
• 38:46
  Speaker 1: than buying condos in Vancouver? Very difficult? Yeah, I mean,
• 38:50
  Speaker 1: I don't know. I always always amazed anytime I visited
• 38:52
  Speaker 1: Vancouver about the sea through apartment buildings, which was apartments
• 38:59
  Speaker 1: owned people in China, and it was sort of their
• 39:02
  Speaker 1: safety nets and other countries not just you noticed all
• 39:04
  Speaker 1: the autocrats they send their children to school in the country. Yeah, absolutely,
• 39:10
  Speaker 1: What why is that they're not confident in their own
• 39:12
  Speaker 1: education systems? Yeah, I mean, I don't know. So you
• 39:16
  Speaker 1: wrote something I thought was kind of interesting, uh, and
• 39:19
  Speaker 1: I want to get some feedback on it. Bricks are
• 39:21
  Speaker 1: a good example of a nonsensical e M grouping made
• 39:25
  Speaker 1: up by Wall Street, now used by autocracies as a
• 39:29
  Speaker 1: dog whistle for forming alliances against the free world. Explain that. Yeah,
• 39:34
  Speaker 1: so that was prompted by a tweet um that I
• 39:38
  Speaker 1: saw that said Iran now wants to join the bricks Right,
• 39:41
  Speaker 1: so bricks was coined by an economist at Goldman Sachs
• 39:46
  Speaker 1: Um like two thousand one or something longer before that, right, Okay, Brazil, Russia, India, China,
• 39:54
  Speaker 1: South Africa. I was added laterally, Yeah, but but you know,
• 39:57
  Speaker 1: mostly Brazil, Russia, India, China, and UM. So they coined
• 40:02
  Speaker 1: that phrase, you know, grouping these countries. But there's nothing
• 40:06
  Speaker 1: in common among these countries except they're all emerging markets,
• 40:10
  Speaker 1: so they're all coming from a low base. So it
• 40:13
  Speaker 1: really made no sense except that it made an acronym.
• 40:16
  Speaker 1: And Wall Street, I think sometimes doesn't realize or consciously
• 40:20
  Speaker 1: denies its own powers. And you know, we created that acronym.
• 40:25
  Speaker 1: And then these countries started something called the Bricks Summit, right,
• 40:30
  Speaker 1: So now they're a summit, so kind of a competition
• 40:33
  Speaker 1: to the G seven and so forth. And now Iran
• 40:36
  Speaker 1: wants to join. So Sas is the guy who who
• 40:42
  Speaker 1: coined that. Okay, I'm not trying to call him out
• 40:44
  Speaker 1: or anything. I'm just saying in in on Wall Street,
• 40:47
  Speaker 1: we sometimes deny our own power and we create these
• 40:50
  Speaker 1: things meaninglessly just to sell product. And then the acronym
• 40:55
  Speaker 1: gets hijacked by autocrats to create alliances against the free world.
• 41:03
  Speaker 1: And so sometimes and that's a good example kind of
• 41:06
  Speaker 1: a visualization of what happens when we invest in these
• 41:09
  Speaker 1: on free markets as well, we lower the cost of
• 41:11
  Speaker 1: capital for these companies in these markets to do business.
• 41:15
  Speaker 1: There is a cost to doing business in a way
• 41:18
  Speaker 1: that puts state interests first. Every company in China has
• 41:22
  Speaker 1: to do that. I'm using China as an example, but
• 41:25
  Speaker 1: the same thing in Russia, Saudi Arabia, Egypt. I mean,
• 41:28
  Speaker 1: you see exppropriation in all these countries, UM, and the
• 41:31
  Speaker 1: state interests always come first. So that comes before your shareholders,
• 41:35
  Speaker 1: before yourselves, before your customers, UM. And there's a cost
• 41:39
  Speaker 1: of doing business that way, and we are subsidizing that
• 41:42
  Speaker 1: cost by investing in these places, in these in these companies.
• 41:48
  Speaker 1: And also these companies typically have very poor accounting standards,
• 41:51
  Speaker 1: very poor transparency. We don't know who the actual owners are,
• 41:56
  Speaker 1: and so you could directly be enriching autocrats and their
• 41:59
  Speaker 1: cronies because we don't know the ownership of a lot
• 42:02
  Speaker 1: of these As long as the regulators are getting there
• 42:06
  Speaker 1: a little payoff on the side, what do they care
• 42:08
  Speaker 1: if the accounting is right as long as their numbers.
• 42:11
  Speaker 1: And we have ourselves to blame for that. It's our
• 42:13
  Speaker 1: regulators that allowed this, our lawyers who wanted to make
• 42:16
  Speaker 1: money from this, our investment bankers, and our you know,
• 42:19
  Speaker 1: Wall Street us. So we have a lot to be
• 42:22
  Speaker 1: responsible for here. And I think sometimes Wall Street, you know,
• 42:26
  Speaker 1: carelessly makes these things up like bricks. Okay, what is that?
• 42:29
  Speaker 1: You know? It doesn't make any sense. And I think
• 42:31
  Speaker 1: you know now now people are realizing that, and it's
• 42:33
  Speaker 1: pretty much dead as a grouping an emerging markets investing
• 42:37
  Speaker 1: at least, But now we still have the Brick Summit
• 42:39
  Speaker 1: and Eyrong wants to join. So there's a lasting consequence
• 42:42
  Speaker 1: to our actions. When you're in a position to direct assets,
• 42:46
  Speaker 1: whether it's your own assets or someone else's assets, that
• 42:49
  Speaker 1: is a position of power and privilege, and we could
• 42:52
  Speaker 1: use that power for good or not. And in emerging
• 42:55
  Speaker 1: markets there is no neutral huh. Really really interesting. I
• 42:59
  Speaker 1: recall re not too long ago, and it actually might
• 43:02
  Speaker 1: have been on Twitter that the A A share investors,
• 43:06
  Speaker 1: meaning the local investors in China get treated very different
• 43:09
  Speaker 1: than the B share investors. And if you were a
• 43:13
  Speaker 1: B share investor in China since nine you haven't done
• 43:17
  Speaker 1: that well, whereas the A share investors did pretty good. Yeah.
• 43:21
  Speaker 1: So the n c h I Index, which is the
• 43:24
  Speaker 1: MSCI China Index, tracks both on shore and offshore shares,
• 43:28
  Speaker 1: a very complete picture of investing in China. UM since
• 43:33
  Speaker 1: its inception in it has had lower than treasury like returns,
• 43:38
  Speaker 1: so lower than for the B share the outside, for
• 43:42
  Speaker 1: both on shore and off shore. Really yeah, together, So
• 43:46
  Speaker 1: for thirty years of the biggest growth spirit of any
• 43:49
  Speaker 1: country on a on an extended basis, and it didn't
• 43:54
  Speaker 1: be treasuries. Correct, it's abysmal. And and now why is that?
• 43:57
  Speaker 1: Is that because so much skim was taken off the top.
• 44:01
  Speaker 1: There's a lot of dilusion, there's expropriation, there's expropriation that
• 44:07
  Speaker 1: so expropriation I define that as UM basically nice business
• 44:11
  Speaker 1: you got there, Shame something happened to it. Yeah, so
• 44:14
  Speaker 1: so government. You know, for example, in Egypt, there was
• 44:18
  Speaker 1: the largest dairy company. The government wanted to take it over.
• 44:22
  Speaker 1: The founder said no, He was put in prison. His
• 44:25
  Speaker 1: son said no, was also put in prison with him.
• 44:28
  Speaker 1: So this happens in all these unfree markets, not just China. Um,
• 44:32
  Speaker 1: I know, I pick on China alot or seem to
• 44:34
  Speaker 1: because they're just such a great example there exhibit A
• 44:37
  Speaker 1: for all of this stuff right now. So so yeah,
• 44:40
  Speaker 1: that you know that happens in all of these countries,
• 44:42
  Speaker 1: and China specifically. You see this major drag on emerging
• 44:47
  Speaker 1: markets indexes as a whole because they have such a
• 44:49
  Speaker 1: large allocation, and so emerging markets as a whole hasn't
• 44:53
  Speaker 1: done that well in the last decade or more so.
• 44:56
  Speaker 1: So that leads to the opposite question. If invest sing
• 45:00
  Speaker 1: in these autocracies and on free countries help some of
• 45:04
  Speaker 1: the worst leaders in the world, what is the positive
• 45:08
  Speaker 1: for investing in the freer countries that respect economic freedom
• 45:13
  Speaker 1: and individual liberty? Yeah, so so freer countries have a
• 45:17
  Speaker 1: lot of benefits that are beyond even economic benefits. They
• 45:20
  Speaker 1: have higher life expectancies, they have lower infor mortality, they
• 45:24
  Speaker 1: have lower gender inequality or higher gender equality. They have
• 45:28
  Speaker 1: higher GDP growth, higher income per capita, lower poverty rates,
• 45:32
  Speaker 1: even their poorest quarter of their incomes are much wealthier
• 45:38
  Speaker 1: in the top quartile freest countries than the bottom quartile
• 45:43
  Speaker 1: of you know, the least free countries. So the bottom.
• 45:46
  Speaker 1: The poorest people in the freer countries are much better
• 45:49
  Speaker 1: off just by being in a freer country. Um. So,
• 45:53
  Speaker 1: so all of these benefits of freedom are kind of nebulous.
• 45:57
  Speaker 1: They're hard to visualize. And when we try to do
• 46:00
  Speaker 1: with the f R d M Index is to be
• 46:03
  Speaker 1: a scorecard of running a scorecard for freedom in the
• 46:05
  Speaker 1: emerging markets, because yeah, there are a lot of benefits
• 46:08
  Speaker 1: investment wise. They these are the countries that have more
• 46:12
  Speaker 1: sustainable growth, recover faster from draw downs. We saw this
• 46:15
  Speaker 1: in a sustainable growth, meaning you know there, it's not
• 46:18
  Speaker 1: government mandated debt driven growth, kind of like you saw
• 46:21
  Speaker 1: in China again Exhibit A. You know, ever, grand we
• 46:24
  Speaker 1: didn't know there was a problem until it was too late,
• 46:26
  Speaker 1: and that's you know, one of the problems with this
• 46:28
  Speaker 1: kind of growth is that lack of transparency UM, the
• 46:32
  Speaker 1: debt driven nature of it UM and it just causes
• 46:35
  Speaker 1: this problems that become too big to fix. So since
• 46:38
  Speaker 1: you launched the Freedom Index, have you been back to China?
• 46:41
  Speaker 1: I have not for Hong Kong, for not even Hong Kong,
• 46:44
  Speaker 1: and I love Hong Kong so much and I wish
• 46:46
  Speaker 1: I could go back, but because of the National security law.
• 46:49
  Speaker 1: It's best that I don't you actually are concerned that
• 46:53
  Speaker 1: if you show up as the founder of this index
• 46:56
  Speaker 1: in Hong Kong or China, you could be arrested. Uh
• 47:00
  Speaker 1: don't want to. I don't want to test that fair enough.
• 47:03
  Speaker 1: So then let me ask you a subtler question. Do
• 47:07
  Speaker 1: you ever get pushed back from countries that are left
• 47:09
  Speaker 1: out of the indext you hear from different players? Yes,
• 47:13
  Speaker 1: I do, and and that's always interesting because, um then
• 47:16
  Speaker 1: I had to get used to that because you know,
• 47:17
  Speaker 1: working at Fidelity a very conservative corporate culture. But yes,
• 47:24
  Speaker 1: we never really had anything to be criticized about. And
• 47:28
  Speaker 1: if you didn't like something I you know, suggested, you know,
• 47:32
  Speaker 1: you blamed your in tim or whoever I was getting
• 47:34
  Speaker 1: my research from, right. Um so, so that, by the way,
• 47:38
  Speaker 1: has a great Twitter feed, he really does. It's really
• 47:42
  Speaker 1: the most interesting of all the Fidelity I have to say.
• 47:45
  Speaker 1: But anyway, pushback, who who's pushed back on you? So
• 47:49
  Speaker 1: it's interesting because I've heard pushback from multiple countries, but
• 47:53
  Speaker 1: the pushback is different depending on the country it's coming from.
• 47:56
  Speaker 1: I've noticed that from Chinese investors in Hong Kong, I
• 48:00
  Speaker 1: get very virulent pushback, like very angry and um, hey
• 48:07
  Speaker 1: you know you don't. You don't. The data set you
• 48:10
  Speaker 1: work off of comes from Fraser and yeah, exactly numbers
• 48:15
  Speaker 1: get from them. I'm not even massaging the numbers. I'm
• 48:18
  Speaker 1: literally just putting the numbers as inputs into my algorithm. Yeah,
• 48:22
  Speaker 1: and my algorithm is coming out with the inclusions. And
• 48:26
  Speaker 1: so from China, I get a lot of pushback in
• 48:29
  Speaker 1: a less civil way, but you know, there's there's still
• 48:32
  Speaker 1: some of them make good points, and I've taken some
• 48:34
  Speaker 1: of that to to heart and and change parts of
• 48:37
  Speaker 1: our index. One of the things that I really valued
• 48:40
  Speaker 1: from that feedback in the very beginning is that somebody
• 48:43
  Speaker 1: pointed out, hey, you have a South African company, Naspers,
• 48:47
  Speaker 1: which is all of the their entire market cap consists
• 48:50
  Speaker 1: of ten cent and so you're essentially that's interesting. This
• 48:55
  Speaker 1: is a quantitative strategy if the company is based in
• 48:58
  Speaker 1: South Africa, and South Africa's included, but it's really a Chinese.
• 49:02
  Speaker 1: So we actually, at the rebalance of that following year
• 49:05
  Speaker 1: made a rule that if more than of your assets
• 49:10
  Speaker 1: are made up of the shares of another company, then
• 49:13
  Speaker 1: in that company is in an excluded country, then you're out,
• 49:16
  Speaker 1: and so so they really, you know, regardless of who
• 49:19
  Speaker 1: the messenger is, the message was helpful. And but what
• 49:23
  Speaker 1: I found is that in the more free or the
• 49:26
  Speaker 1: you know, borderline countries that sometimes get included, sometimes don't.
• 49:29
  Speaker 1: I was in New York a few years ago when
• 49:32
  Speaker 1: Brazil was not included in the fund, and I was
• 49:34
  Speaker 1: in a subway and I ran into a couple of
• 49:37
  Speaker 1: Brazilian UM human rights lawyers and so we were all
• 49:41
  Speaker 1: waiting for the same like late train and UM. And
• 49:44
  Speaker 1: I found out they worked in human rights and I
• 49:46
  Speaker 1: was there for a human rights event, and so we
• 49:47
  Speaker 1: started talking and they were like, hey, it's Brazil and
• 49:49
  Speaker 1: your index. And I was like no, and they were like, yeah,
• 49:52
  Speaker 1: that sounds about right. So I think countries, you know,
• 49:56
  Speaker 1: different people from different countries tend to react differently to
• 49:59
  Speaker 1: not being included. UM, India, right, I have a lot
• 50:02
  Speaker 1: of Indian Um, we have a lot of Indian fans actually,
• 50:05
  Speaker 1: because you know, India tends to have a lot of
• 50:07
  Speaker 1: fights with China, so so they like that we don't
• 50:09
  Speaker 1: have China, but we also now don't have India. And
• 50:11
  Speaker 1: because India a couple of years ago, UM, increased their
• 50:15
  Speaker 1: repression of the cashmere people. They had increased um incidences
• 50:21
  Speaker 1: of government intervention in media, and they blacked out protests
• 50:25
  Speaker 1: in places that had um or blacked out the internet
• 50:28
  Speaker 1: in places that we're going to have protests, the farmers protests.
• 50:31
  Speaker 1: And so because of that, their score dropped, and because
• 50:33
  Speaker 1: their score dropped, they became excluded, and uh, they dropped
• 50:38
  Speaker 1: lower than Brazil, and Brazil got bumped up. So it's
• 50:40
  Speaker 1: all relative, right, So um, after that happened, I didn't
• 50:44
  Speaker 1: hear much. But when I do, you know, personal speaking
• 50:47
  Speaker 1: in person, um, I do hear from Indian you know,
• 50:50
  Speaker 1: audience members. I say, hey, India should really be in there,
• 50:53
  Speaker 1: you know, and they give me all these reasons, and
• 50:54
  Speaker 1: I'm like, I completely agree with you. I love India,
• 50:57
  Speaker 1: you know. Unfortunately my subjective opinion does matter at all,
• 51:00
  Speaker 1: doesn't factor in at all. But you know, is a
• 51:02
  Speaker 1: borderline country and it could make it back in it
• 51:04
  Speaker 1: any time. You know. For a long time, it looked
• 51:05
  Speaker 1: like Brazil was really going to be a very modern, democratic,
• 51:11
  Speaker 1: industrialized nation. But like so many other countries in South America,
• 51:16
  Speaker 1: they seem to have you know, faltered, stumbled a little
• 51:21
  Speaker 1: bit of all the countries that are right in that
• 51:24
  Speaker 1: borderline zone, what do you think are the ones most
• 51:27
  Speaker 1: likely to end up back in the index over the
• 51:30
  Speaker 1: next couple of years. I do think India is very
• 51:34
  Speaker 1: likely to make it back in there. They have some issues, UM,
• 51:38
  Speaker 1: but I think they have enough diversity of viewpoints to
• 51:42
  Speaker 1: kind of push back and push through UM, I hope.
• 51:46
  Speaker 1: And they have very favorable or more favorable demographics since
• 51:51
  Speaker 1: some other countries, UM, so I think they they can
• 51:55
  Speaker 1: possibly make it back in. I think Malaysia is currently
• 51:59
  Speaker 1: in and it's one of those I think we'll stay
• 52:00
  Speaker 1: in there making some you know, reform progress. Colombia is
• 52:04
  Speaker 1: an interesting one that I thought was gonna become more
• 52:07
  Speaker 1: like more likely to come in, but now they're having
• 52:09
  Speaker 1: some issues. UM. And the reason I like to Columbia
• 52:13
  Speaker 1: is because they were benefiting from the human migration from Venezuela.
• 52:18
  Speaker 1: And I like these countries that are in places where, um,
• 52:21
  Speaker 1: there next to a very unfree market and they're like
• 52:23
  Speaker 1: the beacon of freedom in their region, you know, like
• 52:26
  Speaker 1: Taiwan or um, Columbia or in this you know right now, Poland.
• 52:30
  Speaker 1: Where does Mexico fit into the It's low but it's included. Yeah,
• 52:37
  Speaker 1: so so yeah, I know these are the interesting countries.
• 52:40
  Speaker 1: And what I find even more interesting that we don't
• 52:42
  Speaker 1: currently you know, have a product for is frontier markets.
• 52:46
  Speaker 1: There's some very free frontier markets still. Yeah, it's like
• 52:52
  Speaker 1: freer than the US on the rankings, much higher. It's
• 52:55
  Speaker 1: like a number five US is like number fifteen, so
• 52:58
  Speaker 1: and that's a that was four last week. Yeah, and
• 53:01
  Speaker 1: and they would be they would be very offended to
• 53:03
  Speaker 1: be called a frontier market. But I'm just talking about
• 53:06
  Speaker 1: size and give me some frontier. Who else Uruguay which
• 53:10
  Speaker 1: is actually not even classified as frontier I believe by
• 53:12
  Speaker 1: ms C. It's not not even classified. Um it's it's
• 53:16
  Speaker 1: you know, got some very interesting fintech companies and just
• 53:19
  Speaker 1: it's ranked very free. So how about any countries in
• 53:23
  Speaker 1: Africa that are on the border. You know what, I
• 53:27
  Speaker 1: don't know of any off hand in Africa that are
• 53:30
  Speaker 1: on the border Nigeria. I was about to say, Yer
• 53:33
  Speaker 1: and Nigeria. Where are they in your in your rankings?
• 53:36
  Speaker 1: So Nigeria actually is six point to eight out of
• 53:39
  Speaker 1: ten um, which is higher than you know, Russia, Cutter UAE,
• 53:45
  Speaker 1: which are emerging markets. But it's not higher than you know,
• 53:48
  Speaker 1: India and so forth. So so yeah, it's still not
• 53:51
  Speaker 1: free enough. If we were to make a frontier market index,
• 53:53
  Speaker 1: it still would not be free enough to be in there.
• 53:55
  Speaker 1: So here's the question. Are there enough large liquid companies
• 54:00
  Speaker 1: in all the frontier markets to create an index? Right now?
• 54:04
  Speaker 1: We think the answer to that is no, but eventually
• 54:08
  Speaker 1: it might be yeah. And there's other ways of solving
• 54:10
  Speaker 1: that problem possibly. Um So, if any listeners are market makers,
• 54:15
  Speaker 1: or if you want to help us make a market
• 54:17
  Speaker 1: and some of these names, please get in touch, because
• 54:19
  Speaker 1: we would love to solve this problem and make something
• 54:22
  Speaker 1: like an e t F that's available for all investors. Obviously,
• 54:25
  Speaker 1: we can make a you know, hedge fund or something,
• 54:27
  Speaker 1: but I would much prefer to have an ETS structure.
• 54:30
  Speaker 1: So so, so, last question before I get to my
• 54:32
  Speaker 1: favorite questions. You mentioned you miss Hong Kong a lot.
• 54:36
  Speaker 1: What do you miss most about Hong Kong? Okay, So,
• 54:41
  Speaker 1: Hong Kong was like New York on speed Times one.
• 54:45
  Speaker 1: New York on steroids is how everybody describes Hong Kong's
• 54:48
  Speaker 1: Really Yeah, New York just like New York Times ten,
• 54:51
  Speaker 1: just massive. Yeah, I loved that about it's just the
• 54:55
  Speaker 1: speed and the size, the number, the sheer number of people,
• 54:59
  Speaker 1: the stability of um, everything you can do there them,
• 55:06
  Speaker 1: the respect for commerce, the efficiency. UM. It was just
• 55:10
  Speaker 1: such an exciting place that the lights, I mean, the
• 55:14
  Speaker 1: if you look at the city at night, it's beautiful.
• 55:16
  Speaker 1: It's got world class you know everything and Hong Kong.
• 55:22
  Speaker 1: So that's a very difficult question because there's a lot
• 55:25
  Speaker 1: of good food Hunko. It's like New York. There was
• 55:28
  Speaker 1: a you know, I don't even remember all the names.
• 55:29
  Speaker 1: There was a Tapa's place in mid Levels, which I loved.
• 55:33
  Speaker 1: There was a Indian place with the most incredible non
• 55:37
  Speaker 1: m on the Peak that I loved. But I think
• 55:40
  Speaker 1: if I had to pick one, I'm I really miss
• 55:44
  Speaker 1: going to this place called trey Wah and it was
• 55:48
  Speaker 1: it's basically like a ihop, like it's an open twenty
• 55:51
  Speaker 1: four hours and it's the one we went to was
• 55:53
  Speaker 1: in Central which I think it's actually closed now due
• 55:56
  Speaker 1: to COVID. But um, that's where you go at night
• 56:00
  Speaker 1: if you stayed up too late with your friends and
• 56:02
  Speaker 1: stayed out and you just want to go and eat.
• 56:05
  Speaker 1: I just had the best memories there. I just remember
• 56:07
  Speaker 1: you know, hanging out with friends there, you know, in
• 56:10
  Speaker 1: early morning hours. I'm a night person, having the best time.
• 56:13
  Speaker 1: And so that's actually what I missed the most, which
• 56:16
  Speaker 1: is which is like the cheapest like restaurant you could
• 56:19
  Speaker 1: think of there, but it's it's where I had the
• 56:21
  Speaker 1: best memories. So in New York that would be Woe
• 56:23
  Speaker 1: Hops down in Chinatown that was four hours a day.
• 56:26
  Speaker 1: I remember in college, mean, Buddy's piling its three in
• 56:30
  Speaker 1: the morning and it was I think they're still around
• 56:34
  Speaker 1: and still open twenty four hours a day. It's just
• 56:36
  Speaker 1: it's just not I don't even remember the food. I
• 56:38
  Speaker 1: think the food was like secondary. It was like some
• 56:40
  Speaker 1: weird toast um, you know, and tea or something. But
• 56:44
  Speaker 1: but yeah, no, it was it was the best memories,
• 56:47
  Speaker 1: all right. So let's jump to our favorite questions that
• 56:49
  Speaker 1: we ask all of our guests, starting with what have
• 56:52
  Speaker 1: you been streaming during lockdown? Tell us what's been keeping
• 56:56
  Speaker 1: I saw Hobbs and Shawl the other day and I
• 56:58
  Speaker 1: was like, I have missed so many Fast and Furious movies,
• 57:03
  Speaker 1: and so I started from the beginning and now I'm
• 57:06
  Speaker 1: on I just I just finished six and so because
• 57:10
  Speaker 1: I stopped going to those movies after college, and the
• 57:14
  Speaker 1: last one I saw was Tokyo Drift, and I have
• 57:16
  Speaker 1: no memory of you know, pre like two thousand four,
• 57:19
  Speaker 1: so I basically had to watch them all over again.
• 57:22
  Speaker 1: Were you a drift girl? Will you out in two
• 57:25
  Speaker 1: x is? Going sideways around tracks? You know? That's you
• 57:29
  Speaker 1: know I didn't. Actually that's d because I know people
• 57:34
  Speaker 1: who still to this day do that. No, I did not.
• 57:38
  Speaker 1: I was not part of that. It's a funny run
• 57:41
  Speaker 1: of films because it's about this tiny little subculture and
• 57:45
  Speaker 1: they blow it up as if it's like the only
• 57:47
  Speaker 1: thing that really matters. But what I love about that
• 57:49
  Speaker 1: is some of these quotes that they have, and I
• 57:51
  Speaker 1: love like badass women characters. So like Letty in the
• 57:55
  Speaker 1: Latest One said something like you know that after she
• 57:58
  Speaker 1: lost her memory, and she was like, you know what,
• 58:00
  Speaker 1: I may not remember much, but I know one thing.
• 58:02
  Speaker 1: No one would have ever made me. And he made
• 58:04
  Speaker 1: me do anything I didn't want to do because somebody
• 58:07
  Speaker 1: else was blaming themselves for the trouble that she got into.
• 58:10
  Speaker 1: And she was like, no, I wouldn't have done that
• 58:12
  Speaker 1: if I didn't want to do it. And so I
• 58:14
  Speaker 1: love that and I love how UM in Tokyo drift
• 58:18
  Speaker 1: Han was like, I have money, I need trust and
• 58:20
  Speaker 1: character around me. It's like all of these little quotes
• 58:23
  Speaker 1: that it was just the sense of loyalty, and I
• 58:26
  Speaker 1: just I just love the brotherhood about the movie. But
• 58:28
  Speaker 1: the philosophy of fast and furious. Who knew that was UM?
• 58:33
  Speaker 1: Second question, tell us about your mentors who helped to
• 58:36
  Speaker 1: shape your career. I mean, you hear the quote that, UM,
• 58:42
  Speaker 1: if you're the smartest person in the room, you're in
• 58:44
  Speaker 1: the wrong room, right, And I can I can say
• 58:48
  Speaker 1: in this business, I have never been in the wrong room.
• 58:51
  Speaker 1: In fact, I'm usually in the most right room possible.
• 58:54
  Speaker 1: So I think it be harder to answer that question
• 58:56
  Speaker 1: as who who's not been a mentor at this point
• 58:59
  Speaker 1: because I have so many mentors. I mean, how many
• 59:01
  Speaker 1: times have I called you and asked questions? Right? What
• 59:04
  Speaker 1: should I do about this? UM? All my you know
• 59:07
  Speaker 1: E T F brethren who have their own products, right,
• 59:11
  Speaker 1: I talked to them, I asked them questions all the time.
• 59:14
  Speaker 1: UM West is a current mentor early on UM, you know,
• 59:19
  Speaker 1: looking at people like Rob who pioneered non cap weighted
• 59:22
  Speaker 1: indexing UM or not and you know before that when
• 59:29
  Speaker 1: I was a fidelity, my fellow advisors and my clients, right,
• 59:32
  Speaker 1: so my clients, I learned so much from them. I
• 59:35
  Speaker 1: usually now don't get to meet with end clients very much.
• 59:38
  Speaker 1: I usually talked to only advisors. You asked earlier who
• 59:41
  Speaker 1: most of our investors are, and I didn't fully answer
• 59:43
  Speaker 1: that it's advisors. And um, you know I recently got
• 59:47
  Speaker 1: to meet face to face family office and that was
• 59:52
  Speaker 1: a fascinating experience. And just these people were so um
• 59:58
  Speaker 1: kind and generous with their time and um, you know,
• 1:00:01
  Speaker 1: learning about the strategy and you know, um and you know,
• 1:00:06
  Speaker 1: sharing with me about their family and and you know,
• 1:00:09
  Speaker 1: I get my inspiration from these people. These are the
• 1:00:12
  Speaker 1: people that we created the strategy for. And um, you know,
• 1:00:17
  Speaker 1: these are the people that whose feedback I listened to, right,
• 1:00:19
  Speaker 1: people who tell me this is what we want to
• 1:00:21
  Speaker 1: see next? Or um, when advisors tell me, oh my gosh,
• 1:00:26
  Speaker 1: you should hear. How are you know our clients respond
• 1:00:31
  Speaker 1: when we the joy and the relief from our clients
• 1:00:34
  Speaker 1: when we tell them how we invested for them after
• 1:00:37
  Speaker 1: the Russia invasion, that we had them in this freedom
• 1:00:39
  Speaker 1: weighted product. Um, those types of comments are or why
• 1:00:44
  Speaker 1: I'm in this and and they inspire me. M really interesting.
• 1:00:50
  Speaker 1: Let's talk about books. What are some of your favorites
• 1:00:52
  Speaker 1: and what are you reading right now? So right now
• 1:00:55
  Speaker 1: I'm actually reading, um, the book about Bogel. The book. Um,
• 1:01:02
  Speaker 1: it's about three quarters of the way through that. How
• 1:01:04
  Speaker 1: you enjoying it? I'm enjoying it very much. I'm probably
• 1:01:07
  Speaker 1: on chapter three. Um. I was. I was aghast reading it,
• 1:01:12
  Speaker 1: and I'm reading this quote and I'm nodding my head
• 1:01:14
  Speaker 1: in agreement with it. And then I realized, oh, I know,
• 1:01:18
  Speaker 1: I am in agreement with that because it's you. It
• 1:01:20
  Speaker 1: was it was pretty like, oh my god, talk about
• 1:01:23
  Speaker 1: confirmation bias was embarrassing. No, I love how he puts
• 1:01:27
  Speaker 1: so many of our friends in there, and just like
• 1:01:29
  Speaker 1: so many quotes. Um, it's like reading a book with
• 1:01:32
  Speaker 1: all of your friends quotes in there. So I love that. Um,
• 1:01:35
  Speaker 1: it's so good so far. And he and he said,
• 1:01:39
  Speaker 1: you know you should read this book because you know
• 1:01:41
  Speaker 1: you will be inspired by how Jack Bogel also went
• 1:01:44
  Speaker 1: against the grain and so um, so I love it
• 1:01:47
  Speaker 1: so far. UM. The other book that you know, I'm
• 1:01:50
  Speaker 1: a big fan of Bill Browder and what he's doing
• 1:01:52
  Speaker 1: also Red Notice, and you've read Red Notice. What's the
• 1:01:55
  Speaker 1: I read the first one, what's the second notice? Second one?
• 1:01:58
  Speaker 1: Freezing Order? All right, I just got that. I haven't
• 1:02:00
  Speaker 1: read it yet. That's my next one. Yeah you so,
• 1:02:03
  Speaker 1: um so that's that's gonna be exciting. I think, Um,
• 1:02:06
  Speaker 1: I heard that has a happy ending and I love
• 1:02:08
  Speaker 1: happy endings, and you don't. You don't think of these
• 1:02:10
  Speaker 1: stories as ones that would have happy endings. But I'm
• 1:02:13
  Speaker 1: looking forward to seeing what that is. Red Notice is astonishing.
• 1:02:17
  Speaker 1: I mean, you read it and like, if that was fiction,
• 1:02:20
  Speaker 1: it wouldn't be believable, right, Like it has to be
• 1:02:23
  Speaker 1: nonfiction because if it was a novel, you would say,
• 1:02:26
  Speaker 1: this is the most ridiculous thing I've ever read. But
• 1:02:29
  Speaker 1: when you know what it actually happened, you're like, holy,
• 1:02:31
  Speaker 1: it's really astonishing. So you mentioned Eric Beltunist. We have
• 1:02:35
  Speaker 1: him coming on the show in a few months, and
• 1:02:38
  Speaker 1: um Bill Browder coming on the show, and really, yeah,
• 1:02:41
  Speaker 1: so we've we have that's amazing. We have both of
• 1:02:43
  Speaker 1: your books tied up for uh. For I love having
• 1:02:47
  Speaker 1: authors over the summer. It's a perfect time. It gives
• 1:02:50
  Speaker 1: me an opportunity to sit on the beach, read a book,
• 1:02:53
  Speaker 1: and I have I get to pretend I'm working. What'd
• 1:02:55
  Speaker 1: you do? I worked all day Sunday? Really, what you do?
• 1:02:57
  Speaker 1: I I sat on the beach and read Vogel Effects
• 1:03:02
  Speaker 1: and and that's my aska asked Bill Browder, how he
• 1:03:06
  Speaker 1: um thinks about emerging markets investing? And he doesn't he
• 1:03:09
  Speaker 1: tell you he doesn't do it because of the lack
• 1:03:11
  Speaker 1: of rule of law. Yeah, that makes perfect sense to me. Um,
• 1:03:15
  Speaker 1: So I obviously disagree with that. You should still do it,
• 1:03:16
  Speaker 1: because there are some very free markets in emerging markets,
• 1:03:19
  Speaker 1: but I agree with his reasoning. So so. My wife's
• 1:03:23
  Speaker 1: brother used to be general counsel of Amaco, like twenty
• 1:03:27
  Speaker 1: years ago, that little Amaco BP deal. That was his thing.
• 1:03:31
  Speaker 1: And he was never a fan of investing in Russia
• 1:03:34
  Speaker 1: because he always described them. Um. He always described them
• 1:03:40
  Speaker 1: as a criminal enterprise with a standing army attached to it.
• 1:03:44
  Speaker 1: And that was twenty five years ago. And he turned
• 1:03:48
  Speaker 1: out to be very very right. He said, every time
• 1:03:51
  Speaker 1: he ever went to Russia to do any sort of
• 1:03:54
  Speaker 1: contract ordeal, the terms always changed. Even if you had
• 1:03:57
  Speaker 1: a sign agreement, it didn't matter. There was no respect
• 1:04:00
  Speaker 1: for contracts. Forget private property, your individual rights, just whatever
• 1:04:05
  Speaker 1: they could get away with, they could get away with,
• 1:04:07
  Speaker 1: and not a surprise, A didn't make it onto your list.
• 1:04:12
  Speaker 1: Know that rule of law is so important. And Russia
• 1:04:14
  Speaker 1: is one of those countries. I had a client when
• 1:04:16
  Speaker 1: I was a fidelity, a Russian client who told me
• 1:04:18
  Speaker 1: I don't want to invest in Russia because it's like
• 1:04:20
  Speaker 1: funding terrorism. And you see how prescient that was now.
• 1:04:24
  Speaker 1: But Russia is one of those countries that has both
• 1:04:28
  Speaker 1: poor personal freedom and poor economic freedom. So you know,
• 1:04:32
  Speaker 1: personal freedom I categorized into civil and political freedom. Civil
• 1:04:35
  Speaker 1: freedoms are things like terrorism, trafficking, torture, disappearances, UM. Women's
• 1:04:40
  Speaker 1: freedoms there's five women's freedom's proxies and then UM in
• 1:04:45
  Speaker 1: and these are emerging markets. Women's freedoms like women's rights
• 1:04:48
  Speaker 1: to movement, women's rights to children after divorce, women's rights
• 1:04:52
  Speaker 1: to inheritance, things like that UM. And then you have
• 1:04:54
  Speaker 1: your political freedoms like do process, role of law, UM,
• 1:04:58
  Speaker 1: civil sure, criminal procedure. And then you have you know,
• 1:05:01
  Speaker 1: freedom of speech, media expression, and so forth. And then
• 1:05:04
  Speaker 1: you have your economic freedoms that were all familiar with UH,
• 1:05:07
  Speaker 1: freedom to trade internationally, sound money right, free to fear
• 1:05:10
  Speaker 1: countries actually have more sound monetary policies and lower inflation
• 1:05:14
  Speaker 1: rates historically looking at inflation as a major risk going forward. Um,
• 1:05:18
  Speaker 1: business regulations, taxation, um, government interference and private markets and
• 1:05:24
  Speaker 1: so forth. So Russia is one of those countries that rules,
• 1:05:28
  Speaker 1: you know, ranks poorly on and economy. Yeah, so um
• 1:05:34
  Speaker 1: those you know, China is another similar situation. So yeah,
• 1:05:37
  Speaker 1: that's the country that we were never had in the index.
• 1:05:41
  Speaker 1: All right, And our final two questions, what sort of
• 1:05:44
  Speaker 1: advice would you give to a recent college grad who
• 1:05:47
  Speaker 1: was interested in a career in either ETFs, investing or
• 1:05:52
  Speaker 1: emerging markets. Yeah, so I think a lot of college
• 1:05:57
  Speaker 1: grads um these days try to go into quant and
• 1:06:01
  Speaker 1: I think quant does have its place, But I think
• 1:06:04
  Speaker 1: right now, for for new grads, I would say, look
• 1:06:08
  Speaker 1: at you know, look around you, and you know, just
• 1:06:10
  Speaker 1: look at what's happening in the world and invests according
• 1:06:14
  Speaker 1: to that, right, Um, And sometimes that can work just
• 1:06:17
  Speaker 1: as well, um, But for everyone, I would say, one,
• 1:06:23
  Speaker 1: start at a big firm like Fidelity or you know,
• 1:06:26
  Speaker 1: a company like Bloomberg where you can learn a lot
• 1:06:29
  Speaker 1: um and they have the resources to train you. Because
• 1:06:32
  Speaker 1: We've had a lot of college grads come to us
• 1:06:34
  Speaker 1: and say, can we work for you? And you know,
• 1:06:36
  Speaker 1: my answer that I do not have the resources to
• 1:06:39
  Speaker 1: train someone just straight out of college UM as a
• 1:06:43
  Speaker 1: startup right, So UM, I would much rather hire them
• 1:06:46
  Speaker 1: after they've got that training. And you know, don't stay forever.
• 1:06:50
  Speaker 1: Do what you're passionate about. But you know, get the
• 1:06:53
  Speaker 1: basic training down and these are such great training grounds,
• 1:06:57
  Speaker 1: and yeah, maybe you'll stay for a long time. I
• 1:06:58
  Speaker 1: stayed for ten years, Fidel and I loved it, UM
• 1:07:01
  Speaker 1: and that was a tremendous building, you know, blog and
• 1:07:05
  Speaker 1: foundation for what I do now. UM. And the second
• 1:07:07
  Speaker 1: thing I would say is once you do branch out, UM,
• 1:07:11
  Speaker 1: if you're lucky enough to have a vision or a
• 1:07:13
  Speaker 1: mission or something that you're passionate about, you know, UM,
• 1:07:17
  Speaker 1: go for it and try to fail as big as possible.
• 1:07:20
  Speaker 1: Phil fail early and young recover, yes, And so when
• 1:07:24
  Speaker 1: you're young, you know, do do what you want. Go
• 1:07:26
  Speaker 1: for it, and don't ask yourself what is the most
• 1:07:28
  Speaker 1: stable career path. I think a lot of people ask
• 1:07:31
  Speaker 1: that these days, but UM, but ask yourself, what is
• 1:07:34
  Speaker 1: my ideal scenario? What do I want? Ideally? If I
• 1:07:37
  Speaker 1: could have anything, do anything I want. What would I do?
• 1:07:40
  Speaker 1: And then go that direction because you may fail, but
• 1:07:44
  Speaker 1: you know you'll be happy. That's the one thing I
• 1:07:47
  Speaker 1: learned from Yen v Neck of Van Neck Funds. Actually
• 1:07:50
  Speaker 1: early on I heard him speak and and somebody asked him,
• 1:07:52
  Speaker 1: I have an idea for an ET, I should I
• 1:07:54
  Speaker 1: launch it? And He's like, yeah, yeah, sure, you know
• 1:07:56
  Speaker 1: you make you might fail, but you'll be happy and
• 1:07:59
  Speaker 1: that I can tested that. So and you know, one
• 1:08:02
  Speaker 1: of the things that's fascinating about both Silicon Valley and
• 1:08:05
  Speaker 1: the United States compared with more traditional countries is failure
• 1:08:11
  Speaker 1: isn't a red mark in the US the way it
• 1:08:15
  Speaker 1: is elsewhere. Oh he launched the company and failed, how terrible. Here.
• 1:08:19
  Speaker 1: You know, vcs and entrepreneurs list their failures. It's almost
• 1:08:23
  Speaker 1: a badge of an honor. I mean, I know that
• 1:08:25
  Speaker 1: that that's a given for folks like us, but a
• 1:08:28
  Speaker 1: lot of people don't understand how significant that is. Yeah.
• 1:08:31
  Speaker 1: I mean, if you're not failing, you're not trying enough,
• 1:08:33
  Speaker 1: so you're not reaching out of your comfort zone, you're
• 1:08:35
  Speaker 1: not taking rich whole self out there. Yeah. Absolutely. And
• 1:08:39
  Speaker 1: our final question, what do you know about the world
• 1:08:41
  Speaker 1: of investing today. You wish you knew twenty years or
• 1:08:44
  Speaker 1: so ago when you were first getting started. Yeah, So
• 1:08:48
  Speaker 1: when I was first getting started, like twenty years ago.
• 1:08:50
  Speaker 1: It was twenty years ago, actually, I think it is
• 1:08:52
  Speaker 1: when I went to art school in Pasadena to go
• 1:08:54
  Speaker 1: into advertising design. So I was wanting to go into
• 1:08:57
  Speaker 1: a creative field. And what I didn't realize that that
• 1:09:00
  Speaker 1: time is that finance can be very creative and for me,
• 1:09:04
  Speaker 1: indexing is a form of expression. We created this for
• 1:09:08
  Speaker 1: people who believe in the benefits of freedom and want
• 1:09:13
  Speaker 1: to express that in their emerging markets allocations. Before there
• 1:09:16
  Speaker 1: wasn't any way for people to express that if that's
• 1:09:18
  Speaker 1: what they wanted, and now there is. So we're creating
• 1:09:20
  Speaker 1: an avenue for people to express their preferences in the
• 1:09:25
  Speaker 1: emerging market space. Um. And that that's a that's a
• 1:09:29
  Speaker 1: creative thing, you know, using data that's not readily available
• 1:09:33
  Speaker 1: on Bloomberg or fact set insteady using freedom as a metric. Um.
• 1:09:38
  Speaker 1: It was a creative kind of outlet for me. And
• 1:09:41
  Speaker 1: so this is uh, something I didn't know before that
• 1:09:46
  Speaker 1: finance and you know, indexing specifically could be a creative exercise.
• 1:09:50
  Speaker 1: Really quite fascinating. Thank you, Perth for being so generous
• 1:09:54
  Speaker 1: with your time. We have been speaking with Perth Toll.
• 1:09:57
  Speaker 1: She is the founder of the Free Itom E t
• 1:10:00
  Speaker 1: F and Liberty and Freedom Indexes. If you enjoy this conversation,
• 1:10:05
  Speaker 1: well please check any of the previous four hundred such
• 1:10:08
  Speaker 1: discussions that we've done over the past eight years. You
• 1:10:11
  Speaker 1: can find those at iTunes or Spotify or wherever you
• 1:10:15
  Speaker 1: find your favorite podcasts. We love your comments, feedback and
• 1:10:18
  Speaker 1: suggestions right to us at m IB podcast at Bloomberg
• 1:10:23
  Speaker 1: dot net. Sign up from my daily reads at Rid
• 1:10:26
  Speaker 1: Halts dot com. Follow me on Twitter at Rid Halts.
• 1:10:29
  Speaker 1: I would be remiss if I did not thank the
• 1:10:31
  Speaker 1: Cracks staff who helps us put these conversations together each week.
• 1:10:35
  Speaker 1: Justin Miller is my engineer, Paris Wald is my producer.
• 1:10:38
  Speaker 1: Sean Russo is my head of research. Attica val Bron
• 1:10:42
  Speaker 1: is our project manager. I'm Barry Rishults. You've been listening
• 1:10:46
  Speaker 1: to Masters in Business on Bloomberg Radio.