The Annual Awards

May 01, 2020


WINNER: Freedom 100 Emerging Market ETF (FRDM)

It’s not every day you come across a genuinely new take on investing, but the Freedom 100 Emerging Market ETF (FRDM) is one such bona fide innovation.

FRDM’s first-of-a-kind “freedom weighting” selects and weights countries based on the social, political and economic freedoms afforded to their citizens. These include the amount of violent conflict the country experiences, the freedom of its press and judicial systems, how freely its citizens can access capital, and more.

As a result, freedom weighting reduces and, in many cases, eliminates exposure to authoritarian regimes. Unlike almost every other emerging market ETF on the market, FRDM has no exposure to China. Nor does it hold stocks from other troubling EM mainstays, such as Russia, Brazil and Saudi Arabia.

Voters praised FRDM’s uniqueness and data-driven approach to impact investing. One voter even went so far as to express relief that there finally existed an international equity ETF that “doesn’t help reinforce the power of tyrants around the world.”

For years, investing in emerging markets has required, to a certain extent, holding one’s nose. With FRDM, however, investors now have the option to harness the growth potential of emerging markets while satisfying their conscience.



WINNER: Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL)

The Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL) is an actively managed portfolio of TIPS and options on the yield curve. Launched less than a year ago, IVOL is providing institutional-type access to its investors, further increasing the democratization of financial markets.

Adding this new edge to U.S. fixed income ETFs has earned IVOL the “Best New U.S. Fixed Income ETF” award for 2019.

IVOL actively hedges against inflation and yield curve shifts using TIPS (or TIPS-based ETFs) and long options. IVOL’s TIPS protect against an unexpected increase in inflation. IVOL takes long positions on over-the-counter options tied to the shape of the U.S. interest rate swap curve, which would rise in price if the curve steepens or interest rate volatility increases.

The cost of the options will decrease IVOL’s returns relative to TIPS in a steady interest rate environment, but they may prove their worth in a volatile one.

Because of its use of options, IVOL carries a pricey expense ratio, at 0.99%, a consequence of the underlying trading. The fund trades at a 60-day spread of 0.15%, which brings the buy-in price up above 1%.

However, this is a unique fixed income product, characterized by the issuer as “long fixed income volatility.” It’s about hedging—a good tool for any investor. And its asset gathering in less than a year is a testament to that.

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