Transcript: Perth Tolle – The Big Picture






The transcript from this week’s, MiB: Perth Tolle, Life + Liberty Indexes, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.


ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, somebody I know for a long time, Perth Tolle is the founder of the Freedom ETF, based on an index that she helped to create, using metrics designed to emphasize the economic and personal freedoms of different countries. She’ll tell us how she starts with a dataset from various think tanks like Fraser and Cato that rank countries based on their freedom indexes, and then proceeds to put them through an algorithm that she helped to create. And what you end up with is a list of some of the most innovative free emerging market countries in the world, that also end up doing really well.

And in fact, over the past couple of years, when you see how poorly China has done, and obviously, Russia, we have seen all its stocks go to zero, those have not been in her funds. And so, on a relative basis, her fund has done really quite splendidly. You avoid some of the worst countries in the world in an EM index, obviously, you’re going to do well. On an absolute basis, they’ve done well also.

Just go punching FRDM and you could see how well the fund has done over the past couple of years. It’s about $200 million dollars in assets. It has just turned three years old and just became a 5-star Morningstar ranked mutual fund. So really quite fascinating. If you’re at all interested in ETFs, emerging markets, or innovative new ways to slice and dice the world of assets, I think you’re going to find this to be a fascinating conversation.

So with no further ado, my interview with Perth Tolle.

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My extra special guest this week is someone I’ve known for a long time, Perth Tolle is the founder of the Life and Liberty Indexes. She is also the sponsor of the Freedom 100 Emerging Markets ETF. It’s a first of its kind strategy using personal and economic freedom metrics as key factors in driving the investing process. Perth has lived in Beijing and Hong Kong. She currently lives in Texas, and her experiences overseas is what helped lead to the Freedom and Liberty Indexes. Perth Tolle, welcome to Bloomberg.

PERTH TOLLE, FOUNDER, LIFE AND LIBERTY INDEXES: Thank you for having me, Barry. I’ve been waiting to do your podcast for a very long time, and I’m honored to be here.

RITHOLTZ: I’m thrilled. I’m thrilled to have you. So let’s start with the basic inspiration. I love the concept and it’s amazing nobody thought of this previous to you. What was the inspiration for the Life And Liberty Indexes?

TOLLE: So the seed for the idea was planted when I went back and lived in Hong Kong after college. I was born in Beijing and I grew up in both China and the U.S., going back and forth between the two countries. After college, I went and lived in Hong Kong for about a year, reconnecting with my dad’s side of the family. And while I was there, I traveled to the mainland to Beijing, Shanghai, Shenzhen and I saw things that as a person who grew up in a free society mostly in my formative years, that shocked me. And I realized that my life would have been very different had I stayed in China for my entire childhood, as opposed to having come to the United States. So it made a difference in my life, and I realized that it was freedom that made that difference.

RITHOLTZ: So let’s talk a little bit about both personal and economic freedom. How do you use these metrics as creating an index, which the ETF is based on?

TOLLE: So the metrics that we use come from third party think tanks, the Cato Institute and the Fraser Institute, and this keeps all the metrics completely quantitative and independent. So we think it’s very important to have metrics that are robust, that are independent, and that are quantitative. And so the Cato and Fraser dataset that has the human freedom metrics, encompasses both personal and economic freedoms. And they rank 165 countries in the world on these 79 different metrics. We take the 27-country emerging markets universe and just look at those countries. And those scores for those countries, based on the 79 metrics, is the primary factor that goes into our country weighting.

RITHOLTZ: All right. So you have 27 EM countries?

TOLLE: Yeah.

RITHOLTZ: You’re looking at the freest ones in terms of economic freedom and personal liberty. And then from that list, how do you go about selecting the companies from within each country?

TOLLE: Yeah. So let me just run down the whole process just quickly for you here. So first, we had those 27 countries. And currently, we’re using the same country set as MSCI, because most of our clients do benchmark to MSCI. Now, we’re not bound by that, though. So in the future, we may add or subtract certain countries from that universe. Right now, it’s the same as MSCI.

First, after we have that universe, we look at which countries are actually big enough and tradable enough to be in an ETF, because this was always designed to be an ETF. So —

RITHOLTZ: So you need liquidity and volume —

TOLLE: And size.

RITHOLTZ: — and the ability to get money in and out of the country?

TOLLE: Yeah. But mostly, we’re looking at the market cap of the country here as a ratio to world market cap. If you don’t meet our minimum ratio, then you’re out, even if you’re very free. So this actually eliminates very free markets like Czech Republic, which is too small; Peru, which is not liquid enough. And it also eliminates some very unfree markets like Egypt, because of size. So once we have those eliminations based on market cap ratios —

RITHOLTZ: And just to clarify, when you say size, you don’t mean size of the country, you mean size of the companies, the market cap rate relative to —

TOLLE: The market cap in the country. Yeah.

RITHOLTZ: Got it. So you don’t want micro caps in your index?

TOLLE: Correct.


TOLLE: Yeah. So we want to keep it very liquid and very tradable. So once we have those countries eliminated, then we have about 18 countries left in the eligible universe. And these are the countries on which we apply the freedom weights. It’s 100% freedom-weighted. It’s not a — it’s not a tilt and it’s not an overlay. And the reason why we do that is because with market capitalization weighting, which is the standard for most indexes, including emerging markets, you end up with a lot of autocracies with this universe. So the emerging markets universe is filled with autocracies and countries just coming out of autocracies.

RITHOLTZ: Such as? Give us some examples.

TOLLE: Like China, Russia, Saudi Arabia, Turkey, Egypt, and so forth. So by freedom weighting, instead of market cap waiting, we’re seeking to solve that problem of these autocracy heavy concentrations in the emerging market space. And so, we created this for people who want to have that exposure to emerging markets, people will always have either a strategic allocation or just always want that emerging markets exposure, but without funding autocracies. So there’s no — we’ve never had any China, Russia, Saudi Arabia, Turkey, and so forth, because of freedom weighting, not because we, you know, arbitrarily excluded any country, but it’s just a natural result of that freedom weighting.

RITHOLTZ: So you have — you have the set of 27 countries in MSCI that gets reduced to 18 by size.

TOLLE: Right. And then —

RITHOLTZ: And there got to be thousands of potential companies within those 18 countries.

TOLLE: Right. What — no — what —

RITHOLTZ: How do you select, and how do you get there?

TOLLE: So most important part, once we have those 18, we do freedom-weight those 18 countries. As part of that process, the worst offenders are excluded. So the lowest scores are excluded out in this process. And the best of those 18, and typically it’s between 10 and 11 countries, are included in the index. And that is a completely objective process.


TOLLE: That’s rules based and I — you know, my subjective opinion doesn’t factor into that at all.

RITHOLTZ: So now, you’re down to 10 or 11 countries. How do you take — how many common companies do you take from each of those countries?

TOLLE: Yeah. So we take the top 10 largest, most liquid companies in each country, that is not a state-owned enterprise. And that’s the only thing that we do on the security level. So we’re just taking the largest, most liquid companies that are non-state owned. And the reason why we didn’t add any additional factors to that, obviously, I work with a lot of factor people, and the reason why we didn’t add factors to that is because we wanted to isolate the freedom factor for this product. It’s our first ETF. It’s the first emerging markets ETF in the world that uses freedom weighting. And so, we wanted to see if there was a market for this type of product and see how it would go. And we’re very happy with the results.

RITHOLTZ: Yeah. So you ended up with 100 to 110 companies, more or less, and that’s what’s in the ETF?

TOLLE: Yeah. So currently, there’s 11 countries, and there’s 110 securities in the ETF. In the previous two years, there have been 100 securities and 10 countries. That’s why it was called the Freedom 100.

RITHOLTZ: And the index has been outperforming pretty dramatically over the past couple of years, in part, because China seemed to have implode itself going after their own their own senior tech people. We’ll talk about that later. And obviously, Russia was just a debacle.

TOLLE: Yeah.

RITHOLTZ: You sidestepped all of those because none of those countries are in the index?

TOLLE: Yeah. And again, we don’t arbitrarily exclude China or Russia. We didn’t have them in there any of this time because of the — it’s a natural result of that freedom weighting. So freedom weighting, in this case, works very well. And it was a very effective leading indicator of some of these tail risks that investors in these cap-weighted indexes experienced.

RITHOLTZ: And if I recall, this ETF symbol is FRDM for Freedom, is that right?

TOLLE: Yeah.

RITHOLTZ: Very interesting. So let’s talk a little bit about the world of ETFs. First, why an ETF instead of a mutual fund? What was behind the thinking of going that way, especially given your background? You were at Fidelity for a long time, and they had been giant in mutual funds from forever.

TOLLE: Yeah. So once I came back from Hong Kong, I worked at Fidelity Investments in the LA and Houston markets. And I was at Fidelity for about 10 years as a financial advisor. And you know, that’s when I started noticing the trend of the rise of indexing and the rise of ETFs, and how beneficial the ETF structure was for clients. I don’t know of any other investment vehicle or structure that is as beneficial, tax-wise, for clients, and so — and tradability and everything. So I was always a fan of the ETF structure. And when I created this, I always intended for it to be an ETF. We created the index, before there was an ETF. But I always intended — you know, it was always designed to be an ETF.

RITHOLTZ: Right. The old joke was if mutual funds were invented today, they wouldn’t be able to get approved because they’re so inefficient. They trade at the end of the day, and you end up paying taxes on other people who sold as opposed to you paying taxes when you sell the whole thing as opposed to —

TOLLE: I mean, the trading at the end of the day is not as big of a problem, because most of our investors are long term. But that tax efficiency is just so hard to beat in any other type of vehicle.

RITHOLTZ: So who are your investors? Do you have any idea who owns ETF?

TOLLE: So right now, we have about $200 million under assets. And so, it’s just beginning to be big enough to get noticed by institutions. We’re getting more institutional requests at this time. We just had — our family office demanded that we get approved on Morgan Stanley, and they just approved us.

RITHOLTZ: Oh, that’s great. So we’ve been approved on a lot more platforms lately because of the size, and also the three-year track record and the 5-star Morningstar rating.

RITHOLTZ: Now, also, that’s one of my questions for later. But since you brought it up, you just got a 5-star rating at Morningstar. I mean, this was last month, this just popped up.

TOLLE: I should have let you bring that up. Yeah.

RITHOLTZ: Well, I was. It’s just coming up later. But since you mentioned it, we might as well talk about it now.

TOLLE: Yeah. No. And you know what, Morningstar ratings come and go.


TOLLE: And I — that was a surprise to me because — well, I guess it wasn’t a surprise.

RITHOLTZ: It’s not like you applied for it, right?

TOLLE: Yeah. No. It just happens at three years, 36 full months, and it’s based on performance. So I guess it wasn’t that much of a surprise. But you know, what I really appreciate about that is that I didn’t expect this strategy to play out, the thesis to play out this well, this quickly. And for it to have done that in this exact three-year period of time, when the Morningstar has come out, just all the stars had to align for that to happen.

RITHOLTZ: No pun intended.

TOLLE: We – yeah. And we all know how hard it is to get 5-star Morningstar rating.


TOLLE: And so, for us to have that right out of the gate, I’m very grateful for that. And I don’t take much credit because a lot of that is stuff out of my control. You know, we can’t control the market. So that’s —

RITHOLTZ: Or geopolitics.

TOLLE: Yeah.

RITHOLTZ: So who’s going to invade what country?

TOLLE: Exactly.

RITHOLTZ: All these things. Sometimes, you know, it doesn’t hurt to be smart, but being lucky goes a long way.

TOLLE: Yeah. I mean, I think we were set up well, just because freedom weighting obviously is the reason why we didn’t have any China or any Russia, and that helped us tremendously and our investors to avoid that risk.

RITHOLTZ: So here’s the question and pardon my naivete, but the fund has been doing really well. Geopolitical events have worked out perfectly for the Freedom ETF, but go back in any decade in history and there are very similar bad actions by bad actors, autocrats, dictators, all sorts of other folks. The question — and I don’t know if there’s an answer to this, the question I’m going to ask is how come nobody ever thought of this? I mean, it’s one of those ideas that in hindsight is like, “Oh, of course, you pull out the worst players in the geopolitical world, of course, your performance is going to be better.” Has anyone ever explored this idea before that people looked at?

TOLLE: You know what, I would think so. Actually, you know, my friend, Rob Arnott who is one of our investors and our first investor —

RITHOLTZ: I do recall — I think I introduced you.

TOLLE: You know what, you always say that, but on your podcast —

RITHOLTZ: But it’s not true.

TOLLE: — I’m going to say I met him on a seaplane.

RITHOLTZ: That’s right. Flying into — flying into Kotok.

TOLLE: Yeah.

RITHOLTZ: That’s exactly right. I do remember.

TOLLE: So when I left Fidelity and I started doing this very slowly, I called Research Affiliates and I was like, “Hey, you know, you guys do non-cap weighted indexing. We want to do non-cap weighted as indexing. Do you want to work together?” And they were like, “No, please go away.” I couldn’t — I couldn’t get past the first gatekeeper. And then when I went to go — yeah.

RITHOLTZ: Camp Kotok.

TOLLE: In Camp Kotok is because I was on a panel with David Kotok, BlackRock and Morningstar, for a CFA Society’s forecast panel that first year. I had no idea what I was doing at that time. And afterwards, you know, David invited me to his camp, and I was like, “What is this?” He’s like, “50 economists that go fishing in the woods, next to Canada, for three days, with no Wi-Fi.” And actually, my friend said, “You should go because Barry Ritholtz goes to that camp.

RITHOLTZ: Get out of here.

TOLLE: Yeah. It was Christian Magoon of Amplify who said, “Barry Ritholtz goes to that camp. You should go and you can meet Barry.” And so you are partly responsible for me going that year —

RITHOLTZ: That’s very funny.

TOLLE: — in more than one reason. And you’re also responsible for Rob going that year, because he lost the bet to you.

RITHOLTZ: Oh, geez.

TOLLE: And he had to pay — he went to pay that bet. He doesn’t go every year. You know, he hasn’t been back since. And before that, he was there maybe five to seven years prior.

RITHOLTZ: He took advantage of me. I was very, very drunk when he — when he said, “Let’s make a bet.” And I’m like — it was an out of body experience. I watched my right hand go up and shake his hands. And at the back of my brain was “What the hell are you doing, you idiot? That’s a lot of money.”

TOLLE: Yeah.

RITHOLTZ: And he decides to show up with a brick of cash.

TOLLE: It was a brick of cash.

RITHOLTZ: It wasn’t even a check.

TOLLE: Yeah.

RITHOLTZ: It’s like whack. It’s pretty, pretty hilarious. So yeah, so that’s a funny coincidence.


RITHOLTZ: So, I vaguely remember introducing you to Rob out on that deck, not realizing you guys flew in together.

TOLLE: Yeah. We flew in on the — on the seaplane because I called the seaplane company the day I was coming in and I was like, “I’m coming in from LaGuardia today. Is it too late to get a seaplane?” And they said, “No. You can share with Rob Arnott. Here’s his flight number, just go intercept him at the airport.” And I did. I was like —

RITHOLTZ: Just like that?

TOLLE: Yeah. I was like, “Hey, did they tell you we’re going to be riding together?” And that’s how we met. He heard the idea. He thought it was great.

RITHOLTZ: Wait. You pitched him on the plane with all that —

TOLLE: I did.

RITHOLTZ: It’s loud and buzzy. And you’re literally —

TOLLE: I have those headphones.

RITHOLTZ: — 500 feet over the swamp.

TOLLE: Yeah.

RITHOLTZ: You schmoozed and stuff running then?

TOLLE: I believe he asked what I do so —

RITHOLTZ: Oh, okay. So it wasn’t in a left field.

TOLLE: Yeah.

RITHOLTZ: So he was — he was one of your earliest investors.

TOLLE: He was the first one. He invested after camp, he committed.

RITHOLTZ: Into the GP, though. Into the company, not as an investor-investor.

TOLLE: Right. That too. So after camp, he committed to being the first investor in the — at that time, non-existent fund. And then a while later is when I found out I would have to launch the fund myself instead of just, you know, licensing the index. And that’s when he became a GP — LP investor.

RITHOLTZ: So who else? When you say you have to launch the fund yourself, aren’t you running this with another group that helps manage?

TOLLE: Yeah. So my initial plan after I had the index, and this is when I met him and you at Camp Kotok and there wasn’t a fund yet, was to license the index to like iShares or Vanguard, or someone.


TOLLE: I talked to iShares, they didn’t want it. I talked to everyone and no one wanted it. So eventually, I just had to launch it on my own. And that’s when I said, okay, I’ll need to raise funds because the operating costs for an ETF are crazy.

RITHOLTZ: Yeah. No, it’s not insubstantial. It’s between legal and compliance and regulatory filings, you know, it’s a quarter million to a half million dollars easily.

TOLLE: Well, in addition to that, in emerging markets, we actually give you access to local shares on local exchanges. So we pay the custody costs of giving you that access, to give you that market exposure. And that’s one of the things I’m very proud of, I’m very proud to pay on behalf of my clients. So that’s even more expensive for emerging markets.


TOLLE: So we had to raise funds for that. And I ended up, you know — as you know, working with ETF architect prior, they were called Alpha Architect at that time —


TOLLE: — and be the first white label client.

RITHOLTZ: Wes Gray and the whole crew over there. They’re actually a really good group of guys and smart as can be.

TOLLE: Yeah. You did introduce me to Wes Gray, as I recall.

RITHOLTZ: Yeah. I think so.

TOLLE: You were the first one to. Yeah.

RITHOLTZ: All right. Listen, I’m not looking for a commission on any of this.

TOLLE: Okay.

RITHOLTZ: It was just — I find Wes’ stuff to be fascinating. He’s an interesting guy, a Marine Captain —

TOLLE: Yeah.

RITHOLTZ: — slash quants, just such an unusual background.

TOLLE: Yeah.

RITHOLTZ: You know, and then do really good work. I didn’t realize they changed their name from Alpha architect to ETF Architect.

TOLLE: No, they didn’t change their name. They have — they separated the entities.

RITHOLTZ: Oh, so you have ETF Architect as one group. That makes sense.

TOLLE: Yeah.

RITHOLTZ: And then Alpha Architect as another group. Well, say hello to Wes for me. I really like him and his crew. So we went over 27 countries down to 18, down to 10 or 11, and 10 most liquid companies within each — within each country. How about rebalancing? How do you go about over the course of the year keeping things in line with the original balancing? And then how often do you make changes in the index?

TOLLE: Yeah. So we rebalance once a year because the Human Rights data comes out once a year, so the personal and economic freedom data. And it comes out around the end of the year, so we rebalance the third Friday in January, and then we leave it until the next year. If something happens in between, we don’t respond to it immediately. We have to wait to rebalance.

There is a rule that if a country falls more than five points on one of our scales, that we do kick it out, even if it’s already in the index, but we do that at rebalance time. So there’s a — basically, it’s a freedom decline momentum rule. And the reason why we do that is we found that freedom, when it increases, it does so gradually. And when it decreases, it does so very quickly.


TOLLE: And so we don’t want to be catching that falling knife, so to speak. The only country that’s ever triggered that it was Turkey, and that’s before the ETF existed. It was when there was just the index and that was in 2018 rebalance. And it was because they fell more than five points on the previous year’s scales, and that they never made it back into the index since.

RITHOLTZ: So hypothetically, if pre-Erdogan Turkey is in your holdings, and then someone comes in who’s an autocrat, who removes democratic election rules and then imprisons his political opponents, they could end up staying in the index for the balance of the year? Or if it plummets that 5%, you kick them right out?

TOLLE: They would end up staying in there until the rebalance time.

RITHOLTZ: The next year? So —

TOLLE: And the reason — part of that is, yeah, there is a lag in there. But we found that these types of political changes do take time to show up in markets. So it doesn’t happen immediately. If you notice, elections are very often mispriced for this reason.


TOLLE: It takes a couple years for these things to show up. We — I do the freedom meetings with our econometricians at the think tanks every year. And one year, I was there with the Polish delegate from the Polish think tank that works with our freedom guys. And this was right before the PiS government gone to power, if you’ll recall. And they said, “Okay. We’re about to elect this ultra-right-wing kind of crazy government.” And they’re going to have constitutional majority, probably, but it won’t show up in the markets for a couple years. And it happened just as he said. Poland was still the best performing market in 2017.


TOLLE: In 2018, they felt to number four from number one in our index, and they’ve stayed basically in the middle since. But now, you know, they’re taking a lot of steps to support Ukraine in their — in their stand for freedom. So I’m glad they’re in there. I’m glad they’re one of the top 4. But they did show that decline, but not until a few years after that government came into power.

Because what happens is our data providers, they look at what’s actually happening on the ground. They don’t just look at, okay, what we expect to happen. They’re not trying to predict the future. We’re not trying to predict what countries are going to have the best freedom momentum upwards. We catch on the downwards but not upwards because we can’t predict the future. If we were to do that, we would have invested in Argentina a few years ago.


TOLLE: Or some of the worst countries, because they have the best kind of trajectory like expected improvement possibilities. So we don’t do that. We take the absolute freedom level at the time of measurement relative to their peers. And there’s no — you know, there’s no 100% free market and there’s no 100% unfree market. It’s all a gray zone. And so it’s just relative to your peers, you know, when we just take the freest countries.

All of these countries have problems. Even the developed markets, even the United States, we’re not a 100% free here, obviously. So all countries have their issues. And we just try to pick the ones that have the strongest institutions, best rule of law, best individual and investor protections, private property rights, intellectual property rights, things like that. And just make sure we’re giving our investors the, you know, exposures that are the freest of that universe.

RITHOLTZ: Let’s talk a little bit about what’s been going on in China and in Russia, starting with China began cracking down on some of its tech leaders and technology companies a couple of years ago, and it was really surprising to see a government really start bashing their own economic leaders. When you’re looking at that from a distance, you have to be thinking, “Well, I’m glad I don’t have these guys in my index.”

TOLLE: You know what, it’s a bittersweet thing because, yeah, it’s good that we didn’t have them in there. But it’s terrible thing what’s happening. Because, you know, being from China, I want China to succeed. I want them to be free, eventually. And you know, a lot of people, like my myself, years ago thought that we were on that trajectory because China increased in their freedom levels a lot in the last couple of decades. You know, they went from abysmal policies under Mao to not-so-bad policy. They opened up economically and, you know, had great success there. And their GDP grew tremendously and also very real growth, people lifting themselves up out of poverty, and very powerful growth story, but now growth story of the past because they are —

RITHOLTZ: Why do you say that? Growth story of the past. You don’t think there’s a lot of growth ahead for China.

TOLLE: Exactly what you just mentioned. So you know, the star sectors like tech are now being cracked down on. Xi Jinping has consolidated power and is continuing to. There’s —

RITHOLTZ: Dictator for life, right?

TOLLE: Yeah. There’s — the emperor for life. And yeah, there’s no room for any dissent. You saw what happened in Hong Kong, just the just the idea of any dissent.

RITHOLTZ: What about Jack Ma and you look at all the companies he’s affiliated with?

TOLLE: Yeah. So it all started with Ant Financial, when that was scrapped.


TOLLE: And then Jack Ma disappeared after he said something that wasn’t kosher and criticized, you know, just — you know, it was actually very, I think, benign what he said.


TOLLE: But he criticized the government basically the way they handled the financial sector. And you know, here in the United States, we do that every day. Look at us on Twitter. I mean —

RITHOLTZ: Right. That’s silly.

TOLLE: Yeah. And so, the fact that that even that was enough to, you know, basically disappear him, him being a very visible persona in the —

RITHOLTZ: He’s the Elon Musk of China, isn’t he?

TOLLE: Exactly. And you know, just very charismatic and well-loved, well-looked up to guy. And you know, when he disappeared, I think a lot of people realize, “Wow. If they could disappear your founder, you know, you might have some risks there that we didn’t account for.” And then following that, all the other tech leaders started — the CEOs started stepping down or pledging a ton of money for common prosperity, which is one of their new initiatives. And you know, that money came from shareholder pockets.


TOLLE: And it’s basically a bribe. It’s not going to common prosperity. It’s just to keep the government happy.


TOLLE: And so, every company in China now is required to have a communist sell member, you know, as part of their company. All the funds are now required to have communist leader kind of —

RITHOLTZ: It’s like the old mob bosses with —

TOLLE: — overseeing that. Yes.

RITHOLTZ: — “Hey, Freddie is going to show up and he’s going to make sure everything’s done right.”

TOLLE: It does have that feel to it.


TOLLE: And so, this is very scary, actually, for someone who — I mean, I root for China. I want them to succeed. I thought they were going to be much more successful at this point. But that’s — you know, the one problem is they’re reversing these policies and going back to very unfree, even economically, policies. The other problem is the demographics, so the one-child policy.

RITHOLTZ: For a long time, right? By the way, there is — there is a lot of literature and analysis, and even books written about how China effectuated the one-child policy.

TOLLE: Yeah. So the one-child policy led to 30 million missing women in China.

RITHOLTZ: That’s amazing.

TOLLE: That’s official Chinese think tank estimates. Some others have it as —

RITHOLTZ: Even more.

TOLLE: — more than twice that.


TOLLE: And this is a heart issue for me because when I went to China, and as I mentioned, I traveled to Shanghai to Beijing. I was 23 at that time, and I had a friend in Shanghai, her name was Maggie. She was exact same age as me, just like all of my American friends in every way, except she didn’t exist on paper. She was one of what’s called black children who went to school under a fake surname.

RITHOLTZ: Because she was a second child?

TOLLE: She was a second child.


TOLLE: And her parents chose to register her brother for existence, basically. So —


TOLLE: So no school records, no hospital records, no state benefits.

RITHOLTZ: That’s amazing.

TOLLE: So it was basically, you know, everything else. And that’s when I realized, wow, that could have been me. She was exact same as me in every other way. And so that affected me in a profound way. And also, this policy affected our generation in a profound way. Not only are there 30 million missing women, there’s 30 million men who had no prospect of getting married or finding a wife. And what do you do when you have no prospect of ever, you know, having a family? Join the military.


TOLLE: And so that led to a huge military buildup in China as well. And so, this is a policy that made me realize, okay, so policies matter, governance matters. And these types of things have a huge impact on the future of a country, and a society, and an economy. And so, that’s actually what led me to start exploring these relationships between freedom and markets.

RITHOLTZ: So it’s funny you said governance matters. I was discussing — when we finally managed to book you for the — for the podcast, I was discussing this with, I won’t mention their name, but we both know them. And they said, “Well, how is what China is doing to their tech sector any different than what Trump did after he got elected?” And I always find it weird when I’m in a position of having to defend President Trump.

It’s like, “Hey, you can’t compare obnoxious tweets trashing the company with actual government policies that force companies to pay a corrupt tax, have people added to their boards by force, disregard the rule of law, sanctity of contracts, sanctity of private property? As crazy as the Trump era was, it was a lot of noise, at least until January 6th. But, I mean —

TOLLE: Yeah.

RITHOLTZ: — during the Trump administration, it was more noise than actual policies such as we’ve seen in China.

TOLLE: Yeah. I think there’s a few differences there now. First, I don’t know who you’re talking about, actually. But I want to say they have a point in that every country has these issues and it’s just at different degrees, right? So we may have had it — you know, we have regulations that affect how our companies operate here, Trump or no Trump. And there’s a certain degree of government interference in private markets everywhere. So it does happen everywhere. We know we happen to be one of the least worst, I think, in the United States.

And in China, yeah, it’s very different. One reason is you can’t push back against it. So here you see any kind of policy going into place that people don’t like, there’s a huge amount of pushback.

RITHOLTZ: Yeah. Look at all the protests posts Supreme Court overturning Roe v. Wade —

TOLLE: If that had happened —

RITHOLTZ: — people take to the streets. You can’t do that in China.

TOLLE: If that happened in China, do you think people could protest the one-child policy in China? No. Do you think they could protest when they wanted two-child and they’re like, “Well, why did you make me only have one child, you know, when I wanted three-child? No. Nobody could protest that, in fact, it would — you would be prosecuted for protesting. You would be disappeared.


TOLLE: So I can’t launch a fund like this in Hong Kong. I mean, I would be arrested because of national security law.


TOLLE: So the institutions in place, right, are important for pushing back, for checks and balances. There has to be a plurality of political parties. There has to be a system of checks and balances of independent judiciary. There has to be a, you know, free media as a force to keep government accountable. And so, these are all things that we find in freer markets that we don’t see in the less free ones. So you can have a crazy person in charge. But if you have stronger institutions, if you have some checks and balances, free press that keeps, you know, power from getting out of hand.

RITHOLTZ: So let’s talk just for a moment about Russia. Obviously, they’ve become an anathema, given the invasion of Ukraine. But even before that, you didn’t have Russia in the ETF. Tell us the reasons why a country like a Putin-led Russia just doesn’t make it into a freedom index.

TOLLE: Well, their freedom score from the think tanks was too low and that’s why it didn’t —

RITHOLTZ: How low is too low?

TOLLE: So you have to be higher than your peers. And our algorithm assigns positive and negative weights.


TOLLE: The negative weights are excluded. So they were —

RITHOLTZ: How low were they is what I’m really getting to.

TOLLE: So Russia ranks a 6.23 out of 10.


TOLLE: As a comparison, Kuwait is 6.34, India is 6.39. And then you get into included countries; Philippines 6.83, Thailand 6.89, and so forth. These are the kind of borderline countries. India is borderline, sometimes it’s included, sometimes it’s not.

RITHOLTZ: Really? Give us — who were the top three and the bottom three?

TOLLE: So top 3 in emerging markets are Taiwan, top one, Chile and South Korea currently.


RITHOLTZ: So South Korea and Taiwan, kind of really no longer emerging markets, right?

TOLLE: Right, you could say the same about China.

RITHOLTZ: Right, I mean — okay, well, that makes sense. And who are the bottom three? I can imagine.

TOLLE: Yeah. So bottom three in emerging markets, Egypt, Saudi Arabia and China.

RITHOLTZ: Saudi Arabia?

TOLLE: Yeah.


TOLLE: Saudi Arabia ranks actually lower than China on the overall score. It’s a 5.12.


TOLLE: China is 5.57. So 155 and 150 rank out of 162 countries in the world.

RITHOLTZ: So it turns out that taking a bone saw to a journalist and making him disappear isn’t good for your freedom index?

TOLLE: No. They also have some women’s freedom issues.

RITHOLTZ: Hey, they can drive now, right?

TOLLE: Well, it’s funny.

RITHOLTZ: I mean, they can’t show their face but —

TOLLE: In these kinds of markets, in the unfree markets, you have to watch rhetoric versus what actually happens on the ground.


TOLLE: A lot of these reforms that MBS put into place, there was a lot of hope in that country for MBS to reform and you know, because there’s —

RITHOLTZ: We had a lot of hope about Egypt in the Arab Spring also before that all went to hell.

TOLLE: Yeah. And then, you know, women were allowed to drive all of a sudden. But at the same time that the women were allowed to drive, they put four women who had campaigned for women to drive in jail. One of them just was released. Some of them are still in jail.

My friend, Manal al-Sharif, who has been jailed for, you know, campaigning for women to drive in the past, and is now exiled in Australia. She did a poll of women, you know, Women2Drive movement here in the United States at that time to protest those women being in jail. So in these countries, you have to be very careful. There’s always rhetoric, and there’s always a big PR push to make them seem like they’re reforming, when actually, perhaps on the ground, there’s less of that going on in reality.

RITHOLTZ: Really quite fascinating. We mentioned that you’re now a 5-star Morningstar fund, but when you were first rolled out in 2019, the index was voted Best New International Global ETF and Index. What made people so excited about this theme back in 2019?

TOLLE: Yeah. You know, that was a very proud moment for us because that was voted by investors —

RITHOLTZ: People in the ETF industry.

TOLLE: — and people in the industry.


TOLLE: Yeah. So first, you know, investors would put in their kind of nominations, and then a panel of judges of ETF experts would vote. And so, I’m very honored to have — to have that — those awards. But I think what it was is that, intuitively, investors just understand that, you know, freer countries have more sustainable growth. They recover faster from drawdowns. They use their capital more efficiently, whether it’s human or economic capital. So, you know, capital goes where it’s welcomed and where it’s well treated, and that’s Walter Wriston quote.

RITHOLTZ: Right, that’s a great quote.

TOLLE: And capital is not just money, it’s also people and ideas. And you look at the capital outflows coming from Russia right now, coming from Hong Kong. The millionaire exodus, there’s, I believe, more millionaires per capita coming out of Hong Kong than anywhere else at this point. And I think that just speaks to the growth potential of the freer markets to be the launch pads for growth in the next decade. So especially in emerging markets, where they’re coming from this very low base. So I think any emerging markets, because there are such high concentration and when we launched I think China weight was about 40% and most emerging markets —

RITHOLTZ: Right, It’s giant.

TOLLE: Russia and Saudi Arabia were in there. Right now, Russia is out. China is down to like 33%. But it’s still, you know, kind of a high concentration. Saudi Arabia still in the top 10. You still have Turkey, Egypt and all these others. So there’s just a high concentration of these autocracies. And I think people were at that time saying, finally, there’s a way to invest in emerging markets without funding autocracies.

RITHOLTZ: Right. So it’s not even EM ex-China, it’s EM ex-dictatorships. You’re just not participating in the worst —

TOLLE: Right. It’s very different from EM ex-China. So ex-China just acts as China out, out of a market cap-weighted index. It’s not anything else. There is just arbitrary exclusion. And I think that’s a Band-Aid on a much deeper problem, and it doesn’t address the root issue, which is the lack of freedom is the problem in China, not China itself.

RITHOLTZ: So you hinted at something with Hong Kong and I’m curious if you pay attention or track this in any way. You mentioned the exodus of millionaires from Hong Kong. I wonder what sort of brain drain takes place in places like Hong Kong or China or Russia, when the country just takes a really bad turn in the wrong direction and people finally say, “All right, no moss. I’m out.”

TOLLE: Yeah. I mean, I think that’s a — that’s a pretty high level of brain drain. I think without capital controls, it would be even higher. So these countries have those capital controls for a reason.

RITHOLTZ: And how do you get capital out of countries like China or Hong Kong other than buying condos in Vancouver?

TOLLE: It’s very difficult.

RITHOLTZ: Yeah. I mean, I don’t know, I was always amazed anytime I visited Vancouver, about the see-through apartment buildings which was, you know, 75%, 80% apartments owned by people in China and it was sort of their safety nets, and other countries, not just at Vancouver.

TOLLE: And you’ll notice all the autocrats, they send their children to school in the freer countries and so forth. Yeah.

RITHOLTZ: London. Sure. Yeah, absolutely. Why is that? They’re not confident in their own education systems?

TOLLE: Yeah. I mean, I don’t know. You —

RITHOLTZ: So you wrote something I thought was kind of interesting, and I want to get some feedback on it. BRICS are a good example of a nonsensical EM grouping made up by Wall Street, now used by autocracies as a dog whistle for forming alliances against the free world. Explain that.

TOLLE: Yeah. So that was prompted by a tweet that I saw that said, “Iran now wants to join the BRICS.” Right. So BRICS was coined by an economist at Goldman Sachs —


TOLLE: — like 2001, or something.

RITHOLTZ: Maybe even longer before that, right?

TOLLE: Okay.

RITHOLTZ: Brazil, Russia, India, China.

TOLLE: South Africa was added later.

RITHOLTZ: Oh, really?

TOLLE: Yeah. But, you know, mostly Brazil, Russia, India, China. And so, they coined that phrase, you know, grouping these countries. But there’s nothing in common among these countries, except they’re all emerging markets. So they’re all coming from a low base. So it really made no sense, except that it made an acronym. And Wall Street, I think, sometimes doesn’t realize or consciously denies its own powers. And you know, we created that acronym, and then these countries started something called the BRICS Summit. Right. So now they’re a summit, so kind of a competition to the G7, and so forth. And now, Iran wants to join. So this is —

RITHOLTZ: Jim O’Neill of Goldman Sachs is the guy who coined that.

TOLLE: Okay. I’m not trying to call him out or anything, I’m just saying on Wall Street, we sometimes deny our own power. And we create these things meaninglessly, just to sell products. And then the acronym gets hijacked by autocrats to create alliances against the free world. And so sometimes, that’s a good example, kind of a visualization of what happens when we invest in these unfree markets as well. We lower the cost of capital for these companies in these markets to do business.

There is a cost to doing business in a way that puts state interest first. Every company in China has to do that. I’m using China as an example. But it’s same thing in Russia, Saudi Arabia, Egypt, I mean, you see expropriation in all these countries, and the state interest always come first. So that comes before your shareholders, before yourselves, before your customers. And there’s a cost of doing business that way, and we are subsidizing that cost by investing in these places, in these companies. And also, these companies typically have very poor accounting standards, very poor transparency. We don’t know who the actual owners are. And so you could directly be enriching autocrats and their cronies because we don’t know the ownership of a lot of these companies.

RITHOLTZ: Right. As long as the regulators are getting their little payoff on the side, what do they care if the accounting is right as long as their numbers add up.

TOLLE: And we have ourselves to blame for that. It’s our regulators that allowed this, our lawyers who wanted to make money from this, our investment bankers and our — you know, Wall Street, us. So we have a lot to be responsible for here. And I think sometimes Wall Street, you know, carelessly makes these things up like BRICS. Okay. What is that? You know, it doesn’t make any sense. And I think, you know, now, people are realizing that and it’s pretty much dead as a grouping in emerging markets investing, at least.

But now, we still have the BRICS Summit and Iran wants to join. So there’s a lasting consequence to our actions. When you’re in a position to direct assets, whether it’s your own assets or someone else’s assets, that has a position of power and privilege, and we could use that power for good or not. And in emerging markets, there is no neutral.

RITHOLTZ: Really interesting. I recall reading not too long ago, and it actually might have been on Twitter, that the A-share investors, meaning the local investors in China, get treated very different than the B-share investors. And if you are a B-share investor in China since 1990, you haven’t done that well, whereas the A-share investors did pretty good.

TOLLE: Yeah. So the NCHI Index, which is the MSCI China Index tracks both onshore and offshore shares, very complete picture of investing in China. Since its inception in 1992, it has had lower than Treasury-like returns, so lower than —

RITHOLTZ: For the B-share? The outside investments?

TOLLE: For both onshore and offshore.

RITHOLTZ: Oh, really?

TOLLE: Yeah. Together. So all investors —

RITHOLTZ: Wait. 30 years of the biggest growth spurt of any country on an extended basis, and it didn’t beat Treasuries?

TOLLE: Correct. It’s abysmal and —

RITHOLTZ: And now, why is that? Is that because so much skim was taken off the top the local —

TOLLE: There’s a lot of dilution. There’s expropriation. There’s —

RITHOLTZ: Expropriation, define that.

TOLLE: So expropriation, I define that as basically money —

RITHOLTZ: Nice business you got there. Shame if something happens to it.

TOLLE: Yeah. So government, you know, for example, in Egypt, there was the largest dairy company, the government wanted to take it over. The founder said no, he was put in prison. His son said no, was also put in prison with him.


TOLLE: So this happens in all these unfree markets, it’s not just China. I know I pick on China a lot or seem to, because they’re just such a great example. They’re Exhibit A for all of this stuff right now.


TOLLE: So yeah. That — you know, that happens in all of these countries. In China, specifically, you see this major drag on emerging markets indexes as a whole because they have such a large allocation. And so, emerging markets as a whole hasn’t done that well in the last decade or more. So —

RITHOLTZ: So that leads to the opposite question, if investing in these autocracies and unfree countries help some of the worst leaders in the world, what is the positive for investing in the freer countries that respect the economic freedom and individual liberty?

TOLLE: Yeah. So freer countries have a lot of benefits that are beyond even economic benefits. They have higher life expectancies. They have lower infant mortality. They have lower gender inequality or higher gender equality. They have higher GDP growth, higher income per capita, lower poverty rates. Even their poorest quarter of their incomes are much wealthier in the top quartile freest countries than the bottom quartile of, you know, the least free country.


TOLLE: So the bottom, the poorest people in the freer countries are much better off just by being in a freer country. So all of these benefits of freedom are kind of nebulous. They’re hard to visualize. And what we try to do with the FRDM Index is to be a scorecard, a running a scorecard for freedom in the emerging markets. Because, yeah, there are a lot of benefits. Investment-wise, these are the countries that have more sustainable growth, recover faster from drawdowns. We saw this — and sustainable growth, meaning, you know, it’s not government mandated debt-driven growth, kind of like you saw in China, again Exhibit A.


TOLLE: You know, Evergrande, we didn’t know there was a problem until it was too late. And that’s, you know, one of the problems with this kind of growth is that the lack of transparency, the debt-driven nature of it, and it just causes these problems that become too big to fix.

RITHOLTZ: So since you launched the Freedom Index, have you been back to China?

TOLLE: I have not.

RITHOLTZ: Or Hong Kong for that?

TOLLE: No, not even Hong Kong. And I love Hong Kong so much and I wish I could go back. But because of the national security law, it’s best that I don’t.

RITHOLTZ: You actually are concerned that if you show up as the founder of this index in Hong Kong or China, you could be arrested?

TOLLE: I don’t want to — I don’t want to test that.

RITHOLTZ: Okay. Fair enough. So then let me ask you a subtler question. Do you ever get pushback from countries that are left out of the index? Do you hear from different players?

TOLLE: Yes. Yes, I do. And that’s always interesting because — then I had to get used to that because, you know, working at Fidelity, a very conservative corporate culture.

RITHOLTZ: Sure. But down.

TOLLE: Yes. We never really had anything to be criticized about. And if you didn’t like something I, you know, suggested, you blame Jurrien Timmer, or whoever I was getting my research from, right? So that’s —

RITHOLTZ: Who, by the way, has a great Twitter feed.

TOLLE: He really does. It’s really the most interesting of all of Fidelity, I have to say. So —

RITHOLTZ: But anyway, pushback, who’s pushed back on you?

TOLLE: So it’s interesting because I’ve heard pushback from multiple countries, but the pushback is different, depending on the country it’s coming from. I’ve noticed that from Chinese investors in Hong Kong, I get very virulent pushback, like very angry and —

RITHOLTZ: You know, you don’t — you don’t — the dataset you work off of comes from Fraser and Cato.

TOLLE: Yeah, exactly. I’m not —

RITHOLTZ: It’s not my dataset. I’m just massaging what numbers I get from them.

TOLLE: I’m not even massaging the numbers; I’m literally just putting the numbers as inputs into my algorithm.

RITHOLTZ: Ranking them. Right.

TOLLE: Yeah. And my algorithm is coming out with the inclusions. And so, from China, I get a lot of pushback in a less civil way. But you know, there’s still — some of them make good points and I’ve taken some of that to heart and changed parts of our index. One of the things that I really valued from that feedback in the very beginning is that somebody pointed out, “Hey, you have a South African company, Naspers, which all of their entire market cap consists of Tencent. And so you’re essentially in that —

RITHOLTZ: Oh, is that true?


RITHOLTZ: That’s interesting.

TOLLE: This is a quantitative strategy. If the company is based in South Africa, and South Africa is included —

RITHOLTZ: But it’s really a Chinese holding company.

TOLLE: Right. And so we actually add the rebalance of that following year, made a rule —


TOLLE: — that if more than 80% of your assets are made up of the shares of another company, then that company is an excluded country, then you’re out. And so they really — you know, regardless of who the messenger is, the message was helpful and —

RITHOLTZ: Interesting.

TOLLE: But what I found is that in the more free or the, you know, borderline countries that sometimes get included, sometimes don’t. I was in New York a few years ago, when Brazil was not included in the fund. I was in a subway, and I ran into a couple of Brazilian human rights lawyers. And so we were all waiting for the same like late train, and I found out that they work in human rights and I was there for human rights event. And so, we started talking, and they were like, “Hey, is Brazil in your index?” And I was like, “No.” And they’re like, “Yeah, that sounds about right.”

So I think countries — you know, different people from different countries tend to react differently to not being included. India, right, I have a lot of Indian — we have a lot of Indian fans, actually. Because, you know, India tends to have a lot of fights with China, so they like that we don’t have China.

RITHOLTZ: Counterbalance. Sure.

TOLLE: But we also now don’t have India. And because India, a couple of years ago, increased their repression of the Kashmir people. They had increased incidences of government intervention in media, and they blacked out protests in places that had — or blacked out the Internet in places that were going to have protests, the farmers’ protests. And so, because of that, their score dropped. And because their score dropped, they became excluded. And they dropped lower than Brazil, and Brazil got bumped up. So it’s all relative, right?

So after that happened, I didn’t hear much. But when I do, you know, personal speaking in-person, I do hear from Indian, you know, audience members that say, “Hey, India should really be in there, you know,” and they give me all these reasons. And I’m like, “I completely agree with you. I love India. You know, unfortunately, my subjective opinion doesn’t matter at all. It doesn’t factor in at all.” But you know, it’s a borderline country and it could make it back in at any time.

RITHOLTZ: You know, for a long time, it looks like Brazil was really going to be a very modern democratic, industrialized nation. But like so many other countries in South America, they seem to have, you know, faltered, stumbled a little bit. Of all the countries that are right in that borderline zone, what do you think are the ones most likely to end up back in the index over the next couple of years?

TOLLE: I do think India is very likely to make it back in there. They have some issues. But I think they have enough diversity of viewpoints to kind of push back and push through, I hope, and they have very favorable or more favorable demographics than some other countries. So I think they can possibly make it back in. I think Malaysia is currently in and it’s one of those I think will stay in. They’re making some, you know, reform progress.

Colombia is an interesting one that I thought was going to become more like — more likely to come in. But now, they’re having some issues. And the reason I like Colombia is because they were benefiting from the human migration from Venezuela.

RITHOLTZ: Right. And I like these countries that are in places where they’re next to a very unfree market, and they’re like the beacon of freedom in their region, you know, like Taiwan or Colombia, or in this — you know, right now, Poland.

RITHOLTZ: Where does Mexico fit into the ranking?

TOLLE: It’s low, but it’s included. Yeah. So yeah, you know, these are the interesting countries. And what I find even more interesting that we don’t currently, you know, have a product for, is frontier markets. There are some very free frontier markets, Estonia.

RITHOLTZ: Give us some examples. Estonia? Sure.

TOLLE: Yeah. It’s like freer than the U.S. on the rankings, much higher. It’s like in number 5. U.S. is like number 15.


TOLLE: So — and that’s a —

RITHOLTZ: And that was before last week?

TOLLE: Yeah. And they would be — they will be very offended to be called a frontier market. But I’m just talking about size and —

RITHOLTZ: Give me some other frontier markets. Who else is —

TOLLE: Uruguay, which is actually not even classified as frontier, I believe, by MSCI. It’s not even classified. It’s — you know, it got some very interesting fintech companies and it’s ranked very free. So —

RITHOLTZ: How about any countries in Africa that are on the border?

TOLLE: You know what, I don’t know of any offhand in Africa that are on the border. Nigeria.

RITHOLTZ: I was about to say Zaire and Nigeria, where are they in your — in your rankings?

TOLLE: So Nigeria actually is 6.28 out of 10, which is higher than, you know, Russia, Qatar, UAE, which are emerging markets. But it’s not higher than, you know, India and so far. So yeah, it’s still not free enough. If we were to make a frontier market index, it still would not be free enough to be in there.


RITHOLTZ: So here’s the question, are there enough large liquid companies in all the frontier markets to create an index?

TOLLE: Right now, we think the answer to that is no. But —

RITHOLTZ: But eventually, it might be?

TOLLE: Yeah. And there’s other ways of solving that problem possibly. So if any listeners or market makers, or if you want to help us make a market in some of these names, please get in touch because we would love to solve this problem and make something like an ETF that’s available for all investors. Obviously, we can make a, you know, hedge fund or something, but I would much prefer to have an ETF structure. So —

RITHOLTZ: So last question before I get to my favorite questions.

TOLLE: Okay.

RITHOLTZ: You mentioned you miss Hong Kong a lot. What do you miss most about Hong Kong?

TOLLE: Okay. So Hong Kong was like New York on speed times 100.

RITHOLTZ: I — New York on steroids is how everybody describes Hong Kong.

TOLLE: Really?

RITHOLTZ: Yeah. New York on steroids, just like New York times 10, just like massive.

TOLLE: Yeah. I love that about — it’s just the speed and the size, the number — the sheer number of people, the possibility of everything you can do there, the respect for commerce, the efficiency. It was just such an exciting place. The lights, I mean that if you look at the city at night, it’s beautiful. It’s got world class, you know —

RITHOLTZ: Everything.

TOLLE: — everything. And it’s got —

RITHOLTZ: What are your favorite foods in Hong Kong?

TOLLE: So that’s a very difficult question because there’s a lot of good food in Hong Kong. It’s like —

RITHOLTZ: I know. That’s why I’m asking.

TOLLE: It’s like New York. There was a — you know, I don’t even remember all the names. There was a tapas place in Mid-Levels, which I loved. There was an Indian place with the most incredible naan on The Peak that I loved. But I think if I had to pick one, I really miss going to this place called Tsui Wah and it was — it’s basically like IHOP. Like, it’s open 24 hours and it’s — the one we went to was in Central, which I think it’s actually close now due to COVID.

But that’s where you go at night, if you stayed up too late with your friends and stayed out, and you just want to go and eat. I just had the best memories there. I just remember, you know, hanging out with friends there, you know, in early morning hours. I’m a night person, having the best time. And so that’s actually what I miss the most, which is — which is like the cheapest, like, restaurant you could think of there. But it’s where I had the best memories.

RITHOLTZ: So in New York, that would be Wo Hop down in Chinatown.

TOLLE: Okay.

RITHOLTZ: That was open 24 hours a day.

TOLLE: Yeah.

RITHOLTZ: I remember in college, me and buddies pile into there —

TOLLE: It’s like you’re at —

RITHOLTZ: — at 3:00 in the morning.

TOLLE: Yes. That’s the place.

RITHOLTZ: And it was — and I think they’re still around and still open 24 hours a day.

TOLLE: Yeah.

RITHOLTZ: It’s just — it’s just nonstop place.

TOLLE: I don’t even remember the food. I think the food was like secondary.


TOLLE: It was like some weird toast, you know, and tea or something. But, yeah, you know, it was — it was the best memories.

RITHOLTZ: All right. So let’s jump to our favorite questions that we ask all of our guests starting with, what have you been streaming during lockdown? Tell us what’s been keeping entertained.

TOLLE: You know what, I saw Hobbs and Shaw the other day, and I was like — I have missed so many Fast and Furious movies. And so, I started from the beginning.

RITHOLTZ: Oh, really?

TOLLE: And now, I’m on — I just — I just finished six. And so — because I stopped going to those movies after college, and the last one I saw was Tokyo Drift. And I have no memory of, you know, pre like 2004. So I basically had to watch them all over again.

RITHOLTZ: Were you a drift girl? Were you out in 240Zs going sideways or on track?

TOLLE: No. That’s — that’s more you.

RITHOLTZ: I could see you —

TOLLE: No, that’s you. No, I didn’t actually — that’s not —

RITHOLTZ: Drive? Because I know people who still, to this day, do that.

TOLLE: No, I did not. I was not part of that.

RITHOLTZ: It’s a funny run of films because it’s about this tiny little subculture.


RITHOLTZ: And they blow it up as if it’s like the only thing that really matters and then —

TOLLE: Yes. But what I love about that is some of these clothes that they have and I love like badass woman characters. So like Letty, in the latest one, said something like, you know, that — after she lost all her memory and she was like, “You know what, I may not remember much, but I know one thing, no one would have ever made me anything — made me do anything I didn’t want to do.” Because somebody else was blaming themselves for the trouble that she got into and she’s like, “No, I wouldn’t have done that if I didn’t want to do it.” And so I love that. And I love how, in Tokyo Drift, Han was like, “I have money. I need trust and character around me.” It’s like all of these little quotes that — and just the sense of loyalty and I just — I just love the brotherhood about the movie.

RITHOLTZ: The philosophy of Fast and Furious, who knew that was the thing? Second question, tell us about your mentors who helped to shape your career.

TOLLE: I mean, you hear the quote that if you’re the smartest person in the room, you’re in the wrong room, right? And I can — I can say in this business, I have never been in the wrong room. In fact, I’m usually in the most right room possible. So I think it’d be harder to answer that question as who’s not been a mentor at this point because I have so many mentors. I mean, how many times have I called you and asked questions?


TOLLE: Like, what should I do about this? All my, you know, ETF brethren who have their own products, right. I talk to them, I ask them questions all the time. Wes is a current mentor. Early on, you know, looking at people like Rob who pioneered non-cap weighted indexing.

RITHOLTZ: Rob Arnott of the Research Affiliates.

TOLLE: Yeah. Rob Arnott. And you know, before that, when I was at Fidelity, my fellow advisors and my clients, right? So my clients, I learned so much from them. I usually, now, don’t get to meet with clients very much. I usually talk to only advisors. You asked earlier who most of our investors are and I didn’t fully answer that, it’s advisors. And you know, I recently got to meet face to face family office and that was a fascinating experience, and just these people were so kind and generous with their time and you know, learning about the strategy, and you know, sharing with me about their family.

And you know, I get my inspiration from these people. These are the people that we created the strategy for. And you know, these are the people that whose feedback I listen to, right, people who tell me, “This is what we want to see next,” or when advisors tell me, “Oh my gosh, you should hear how our — you know our clients respond when we — the joy and the relief from our clients when we tell them how we invested for them, after the Russia invasion, that we had them in this freedom-weighted product.” Those types of comments are why I’m in this and they inspire me.

RITHOLTZ: Really interesting. Let’s talk about books. What are some of your favorites and what are you reading right now?

TOLLE: So right now, I’m actually reading the book about Bogle, “The Bogle Effect.”

RITHOLTZ: Eric Balchunas’ book.

TOLLE: Yes. It’s fun.

RITHOLTZ: Yeah? I’m about three-quarters away through that. How are you enjoying it?

TOLLE: I’m enjoying it very much. I’m probably on Chapter 3. So —

RITHOLTZ: If I was — I was aghast reading it and I’m reading this quote, and I’m nodding my head in agreement with it.

TOLLE: Yeah.

RITHOLTZ: And then I realized, oh, I know I am in agreement with that.

TOLLE: It’s because it’s you.

RITHOLTZ: It was — it was pretty like, oh, my God, talk about confirmation bias. That was embarrassing.

TOLLE: No. I love how he puts so many of our friends in there, just like so many quotes. It’s like reading a book with all of your friends’ quotes in there. So I love that. It’s so good so far. And he told me —

RITHOLTZ: “The Bogle Effect” is the name of it.

TOLLE: Yes. And he said, “You know, you should read this book because, you know, you will be inspired by how Jack Bogle also went against the grain.” And so, I love it so far. The other book that — you know, I’m a big fan of Bill Browder and what he’s doing also.

RITHOLTZ: “Red Notice” and —

TOLLE: You’ve read “Red Notice?”.

RITHOLTZ: What’s the — I read the first one.

TOLLE: Yeah, that’s “Red Notice.”

RITHOLTZ: What’s the second one?

TOLLE: Second one is “Freezing Order.”

RITHOLTZ: All right. I just got that, I haven’t read it yet. It’s in my queue.

TOLLE: And that’s my next one. Yeah, in queue. So that’s going to be exciting. I think — I heard that it has a happy ending and I love happy endings. And you know, you don’t think of these stories as ones that would have happy endings, but I’m looking forward to seeing what that is.

RITHOLTZ: “Red Notice” is astonishing.


RITHOLTZ: I mean, you read it and like, if that was fiction, it wouldn’t be believable.

TOLLE: Right.

RITHOLTZ: Right? Like, it has to be nonfiction because if it was a novel, you would say, “This is the most ridiculous thing I’ve ever read.”

TOLLE: Yeah.

RITHOLTZ: But when you know it actually happened, you’re like, “Holy, it’s really astonishing.” So you mentioned Eric Balchunas, we have him coming on the show in a few months, and Bill Browder coming on the show in a few months.

TOLLE: Really?

RITHOLTZ: Yeah. So we’ve — we have —

TOLLE: That’s amazing.

RITHOLTZ: We have both of your books teed up for — I love having authors over the summer. It’s a perfect time. It gives me an opportunity to sit on the beach, read a book, and I have — I get to pretend I’m working. “What did you do?” I worked all day Sunday. “Really? What did you do?” I sat on the beach and read “Bogle Effects.”

TOLLE: Yeah.

RITHOLTZ: And that’s my work.

TOLLE: No. Ask Bill Browder how he thinks about emerging markets investing and he doesn’t — he’s going to tell you he doesn’t do it because of the lack of rule of law.

RITHOLTZ: Yeah. That makes perfect sense to me.

TOLLE: Yeah. So I obviously disagree with that. You just still do it because there are some very free markets in the emerging markets. But I agree with his reasoning. Yeah.

RITHOLTZ: So my wife’s brother used to be general counsel of Amoco like 20 years ago. That little Amoco BP deal, that was his then.

TOLLE: Oh, wow.

RITHOLTZ: And he was never a fan of investing in Russia because he always described them — he always described them as a criminal enterprise with a standing army attached to it. And that was 25 years ago, and he turned out to be very, very right. He said every time he ever went to Russia to do any sort of contract or deal, the terms always changed. Even if you had a signed agreement, it didn’t matter. There was no respect for contracts, forget private property or individual rights. Just whatever they can get away with, they get away with. And not a surprise, they didn’t make it onto your list.

TOLLE: No. That rule of law is so important. And Russia is one of those countries — I had a client when I was at Fidelity, a Russian client who told me, “I don’t want to invest in Russia because it’s like funding terrorism.”


TOLLE: And you see how prescient that was now.


TOLLE: But Russia is one of those countries that has both poor personal freedom and poor economic freedom. So you know, personal freedom, I categorize into civil and political freedoms. Civil freedoms are things like terrorism, trafficking, torture, disappearances. Women’s freedoms, there’s five women’s freedoms proxies. And these are emerging markets women’s freedoms, like women’s rights to movement, women’s rights to children after divorce, women’s rights to inheritance, things like that.

And then you have your political freedoms, like due process, rule of law, civil procedure, criminal procedure. And then you have, you know, freedom of speech, media expression, so forth. And then you have your economic freedoms that we’re all familiar with. Freedom to trade internationally sound money, right? Freer countries actually have more sound monetary policies and lower inflation rates historically, looking at inflation as a major risk going forward. Business regulations, taxation, government interference and private markets and so forth.

So Russia is one of those countries that rules — you know, ranks poorly on both personal and economic.

RITHOLTZ: Just about every one of those bullet points.

TOLLE: Yeah. So those — you know, China is another similar situation. So yeah, that’s a country that we never had in the index.

RITHOLTZ: And our final two questions, what sort of advice would you give to a recent college grad who is interested in a career in either ETFs investing or emerging markets?

TOLLE: Yeah. So I think a lot of college grads, these days, try to go into quant and I think quant does have its place. But I think right now, for new grads, I would say look at — you know, look around you, and you know, just look at what’s happening in the world and invest according to that, right? And sometimes that can work just as well. But for everyone, I would say, one, start at a big firm like Fidelity or, you know, a company like Bloomberg, where you can learn a lot and they have the resources to train you.

Because we’ve had a lot of college grads come to us and say, “Can we work for you?” And you know, my answer to that is, “I do not have the resources to train someone just straight out of college, as a startup,” right? So I would much rather hire them after they’ve got that training. And you know, don’t stay forever, do what you’re passionate about. But you know, get the basic training down. And these are such great training grounds. And yeah, maybe you’ll stay for a long time. I stayed for 10 years at Fidelity and I loved it. And that was a tremendous building block and foundation for what I do now.

And the second thing I would say is once you do branch out, if you’re lucky enough to have a vision or a mission, or something that you’re passionate about, you know, go for it and try to fail as big as possible.

RITHOLTZ: Fail early and young when you can recover.

TOLLE: Yes. Yes. And so when you’re young, you know, do what you want, go for it, and don’t ask yourself, what is the most stable career path? I think a lot of people ask that these days. But ask yourself, what is my ideal scenario? What do I want ideally? If I could have anything, do anything I want, what would I do? And then go that direction. Because you may fail, but you know, you’ll be happy. That’s the one thing I learned from Jan van Eck of VanEck Funds.


TOLLE: Actually, early on, I just heard him speak and somebody asked him, “I have an idea for an ETF. Should I launch it?” And he’s like, “Yeah, yeah, sure. You know, you might fail, but you’ll be happy.’ And that — I can attest to that. So —

RITHOLTZ: And you know, one of the things that’s fascinating about both Silicon Valley and the United States compared with more traditional countries is failure isn’t a red mark in the U.S. The way it is elsewhere, “Oh, he launched a company and it failed, how terrible.” Here, you know, VCs and entrepreneurs list their failures. It’s almost a badge of honor. I mean, I know that that’s a given for folks like us. But a lot of people don’t understand how significant that is.

TOLLE: Yeah. I mean, if you’re not failing, you’re not trying enough. So —

RITHOLTZ: You’re not reaching out of your comfort zone.

TOLLE: Yeah.

RITHOLTZ: You’re not taking risks.

TOLLE: You’re not bringing your whole self out there. Yeah.

RITHOLTZ: Absolutely. And our final question, what do you know about the world of investing today you wish you knew 20 years or so ago, when you were first getting started?

TOLLE: Yeah. So when I was first getting started, like 20 years ago, 20 years ago, actually, I think is when I went to art school in Pasadena, to go into advertising design. So I was wanting to go into a creative field. And what I didn’t realize at that time is that finance can be very creative. And for me, indexing is a form of expression. We created this for people who believe in the benefits of freedom and want to express that in their emerging markets allocations. Before, there wasn’t any way for people to express that, if that’s what they wanted. And now, there is.

So we’re creating an avenue for people to express their preferences in the emerging market space. And that’s a –that’s a creative thing, you know, using data that’s not readily available on Bloomberg or FactSet, instead using freedom as a metric. It was a creative kind of outlet for me. And so, this is something I didn’t know before that finance, and you know, indexing specifically could be a creative exercise.

RITHOLTZ: Really quite fascinating. Thank you, Perth, for being so generous with your time. We have been speaking with Perth Tolle. She is the founder of the Freedom ETF and Liberty and Freedom Indexes. If you enjoy this conversation, well, please check any of the previous 400 such discussions that we’ve done over the past eight years. You can find those at iTunes or Spotify, or wherever you find your favorite podcasts.

We love your comments, feedback, and suggestions. Write to us at Sign up for my daily reads at Follow me on Twitter @ritholtz. I would be remiss if I did not thank the crack staff who helps us put these conversations together each week. Justin Miller is my engineer. Paris Wald is my producer. Sean Russo is my head of Research. Atika Valbrun is our project manager.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.



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