A passive ETF that tracks the Freedom 100 Emerging Markets Index. When selecting emerging-market countries, it scores 79 indicators covering human rights, rule of law, and economic freedom to assign country weights, meaning its country composition can differ significantly from traditional market-cap-weighted emerging-market ETFs.

It is well suited for investors who are uncomfortable with exposure to authoritarian countries such as China and Russia in their emerging-markets allocation and who want a freedom-index-based alternative strategy.

The ETF was launched in 2019 by Alpha Architect and is passively managed (index-tracking).

Country weights for emerging markets are calculated based on 79 personal and economic freedom indicators, after which approximately 100 stocks are selected from each country. Countries ranking low on freedom, such as China and Russia, are assigned reduced weights or excluded, while relatively higher-freedom countries such as Taiwan, South Korea, and Chile carry larger weights.

• Country weights are determined by freedom indicators rather than market capitalization
• Minimizing exposure to authoritarian countries reduces governance and human-rights risks

Assets under management (AUM) stand at $3.3B, and the total expense ratio is 0.49% annually.

Compared with similar emerging-markets ETFs such as FNDE, XSOE, and PXH, the expense ratio is somewhat higher, but the ETF offers a differentiated country allocation through its freedom-index-based strategy.

Because of its higher weights in Taiwan and South Korea, which rank high on freedom, performance is significantly influenced by the chip and technology sectors. Returns tend to improve during periods of broad emerging-markets recovery and a weakening U.S. dollar, and the ETF has shown relative defensiveness during periods of Chinese equity-market weakness thanks to its low China exposure.

Demand from investors seeking to avoid ESG and governance risks has translated into steady inflows. Interest in this ETF tends to rise when geopolitical tensions escalate, given its low China exposure, and its AUM has continued to grow at a mid-tier scale within the emerging-markets ETF category.

A differentiated country allocation based on the freedom index is a key strength, while the expense ratio and concentration in specific countries represent the main drawbacks.

In the table, FNDE is Schwab's core emerging-markets dividend ETF and tends to carry a lower expense ratio. XSOE is an emerging-markets ETF that excludes state-owned enterprises and, like FRDM, applies an alternative filtering strategy. PXH and EMGF are Invesco and BlackRock emerging-markets factor ETFs, respectively. For investors seeking broader emerging-markets exposure, IEMG and VWO are also worth considering. IEMG is iShares' broad core emerging-markets ETF, while VWO is Vanguard's low-cost emerging-markets ETF.

Review the items below before investing in FRDM. It helps to verify in advance the key features of the freedom-index strategy, the expense ratio, the country-concentration profile, and currency risk.

Concentration in Taiwan and South Korea, along with the currency volatility typical of emerging markets, are the main risks. Any change to the freedom-index methodology could alter the portfolio composition, and a broad deterioration in the emerging-markets macro environment could lead to sizable short-term losses.

If exposure to China and Russia within traditional market-cap-weighted emerging-markets ETFs is a concern, FRDM represents a meaningful alternative. If cost efficiency is the priority, IEMG or VWO may be considered, while those seeking a state-owned-enterprise-exclusion strategy can also evaluate XSOE.