Market Overview

Let Freedom Ring With This New ETF

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Let Freedom Ring With This New ETF

The Freedom 100 Emerging Markets ETF (CBOE: FRDM) debuted May 23 as the newest emerging markets exchange traded fund targeting virtuous investment principles, offering investors a refreshed view of environmental, social and governance (ESG) concepts in developing economies.

What To Know

While there are plenty of ESG ETFs trading in the U.S., including products dedicated to emerging markets stocks, these funds typically use the same methodologies, such as excluding alcohol, tobacco and gambling companies, civilian firearms makers and other companies perceived to be creating environmental harm.

FRDM, which tracks the Life + Liberty Freedom 100 Emerging Markets Index, has the potential to stand apart from the tired ESG strategies investors have been accustomed to.

Why It's Important

FRDM's underlying index employs a variety of freedom-gauging metrics, including the exclusion of state-owned enterprises (SOEs) and a top-down approach that emphasizes civil, economic and political freedoms. The index's starting universe is 26 emerging markets, which are then screened by market value.

The index's civil freedom qualifier measures, among other factors, women's rights, detainments, torture, trafficking and a country's level of violent crime. The liberty element gauges various freedoms, including press, expression, religion, assembly as well as due process and rule of law. FRDM's economic freedom component looks at business, credit, and labor regulations, size of government, property laws and other factors.

FRDM features exposure to 10 developing economies with Taiwan, South Korea, Poland and Chile combining for about 71 percent of the fund's geographic weight. The new ETF has no exposure to Brazil, China and Russia. FRDM is the only emerging markets ETF to exclude China without being specifically designed to do so.

Fifty-one percent of the new ETF's holdings hail from the technology and financial services sectors. The consumer discretionary and materials sectors combine for almost 22 percent of the new ETF's roster.

What's Next

FRDM has the potential to disrupt the ESG ETF arena, a corner of the ETF market that is growing in population terms, but one that has also been in need of some new concepts.

The new ETF charges 0.49 percent per year, or $49 on a $10,000 investment. That compares favorably with the average fees on traditional emerging markets ETFs as well ESG emerging markets funds.

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