ETF Spotlight: FRDM Emerging Markets Excludes China, India

The Freedom 100 Emerging Markets ETF (FRDM) offers investors a unique approach to emerging markets by focusing on countries that uphold personal and economic freedoms.

In 2025, this approach may be attractive to investors seeking international exposure amid trade war concerns, as it excludes tariff-burdened China and the short-term moderating economy of India. 

Year to date, FRDM’s 9.2% gain outpaces the broader, China and India-dominated iShares MSCI Emerging Markets ETF (EEM), up 6.7%. 

Furthermore, while not a direct environmental, social, and governance (ESG) mandate, the fund’s "freedom" factors can indirectly correlate with positive ESG outcomes. For example, companies with strong labor freedom are more likely to have better social practices, and those with less corruption often have better governance. 

FRDM’s Strategy and Investment Approach

FRDM tracks the Life + Liberty Freedom 100 Emerging Markets Index, which evaluates countries based on personal and economic freedom metrics. The fund invests in approximately 100 equity securities from nations that score highly on these metrics, resulting in significant allocations to countries like Taiwan and South Korea. This strategy emphasizes large-cap companies, with a notable concentration in the technology sector. 

By excluding nations with lower freedom scores, such as China and India, FRDM aims to provide exposure to markets with transparent governance and robust property rights.  

Pros and Cons of Investing in FRDM

While FRDM’s ESG-like strategy, as well as its exclusion of China and India, has its benefits, the fund is still exposed to similar risks as other emerging markets funds. Here are the main pros and cons for investors to consider:  

Pros

• Ethical Investment: Aligns with investors seeking to support countries that prioritize civil liberties and economic freedoms. 
• Performance Potential: By excluding markets with potential governance issues and U.S.-imposed tariffs, the fund may reduce exposure to certain geopolitical and economic risks. 
• Sector Focus: Heavy exposure to technology sectors in freer markets could offer growth opportunities. 

Cons

• Limited Diversification: Excluding major emerging markets like China and India may lead to higher concentration in specific countries or sectors. 
• Market Volatility: Emerging markets can be volatile, and political changes in the countries included could impact performance. 
• Potential Underperformance: If excluded markets outperform, FRDM may lag more inclusive emerging market funds. 

FRDM, Emerging Markets Outlook for 2025

FRDM's exclusion of China and India is significant, as these countries often dominate traditional emerging market indices. By omitting them, FRDM reduces exposure to potential regulatory and geopolitical risks associated with these nations, as FRDM could serve as a trade-war hedge compared to traditional EM funds. However, this also means missing out on the growth opportunities these large economies may present in the long term. 

In 2025, the performance of FRDM will largely depend on the economic trajectories of its included countries. For instance, political stability in South Korea and technological advancements in Taiwan could bolster returns. Conversely, any political unrest or economic downturns in these nations could pose challenges. 

Investors considering FRDM should weigh the benefits of its freedom-focused strategy against the potential risks of excluding major emerging markets. Diversification and alignment with personal investment ethics are key factors to consider when evaluating this ETF.