At The Money: Better Results By NOT Investing with Dictators! - Masters in Business Recap

Podcast: Masters in Business

Published: 2026-01-14

Duration: 17 minutes

Guests: Perth Tolle

Summary

Investing in emerging markets without supporting authoritarian regimes can yield better returns. The Freedom 100 EM Index avoids countries like China and Russia, focusing instead on those with higher freedom scores.

What Happened

Perth Tolle, founder of the Freedom 100 EM Index, explains why avoiding investments in authoritarian regimes can lead to better market performance. Traditional emerging market indices often give significant weight to autocratic countries like China and Russia, which can be risky and counterproductive for investors. Tolle's Freedom Index uses a 'freedom weighting' approach, excluding countries with poor civil and economic freedoms, as defined by the Human Freedom Index from the Cato and Fraser Institutes.

Tolle shares her personal experiences growing up in China and working in Hong Kong, which highlighted for her the impact of government policies on markets and societies. This background inspired her to create an investment product that aligns with democratic values and offers a safer investment alternative. By excluding authoritarian countries, the Freedom Index avoids the risks associated with state-controlled companies prioritizing government interests over shareholder value.

The podcast delves into the specifics of how the Freedom Index is constructed, using quantitative metrics of freedom to determine country weights. Tolle describes the rigorous screening process that ensures only countries with above-average freedom scores are included, and explains why countries with significant state ownership are excluded.

A key example discussed is China's underperformance compared to the S&P 500 over the last few decades, attributed to the influence of state interests over business operations. Tolle argues that investing in Chinese companies means indirectly supporting practices like state surveillance and human rights abuses.

The conversation highlights Russia's exclusion from the Freedom Index, which protected investors from losses when Russian stocks plummeted after the Ukraine invasion. This example underscores the value of avoiding investments in countries with unpredictable political climates.

The episode concludes with the idea that investing in freer countries not only aligns with ethical values but also taps into markets with better growth potential. Tolle suggests that countries like Chile and Poland, often overshadowed by larger economies, offer significant opportunities for investors seeking both growth and ethical alignment.

Key Insights

• The Freedom 100 EM Index excludes countries with poor civil and economic freedoms, using data from the Human Freedom Index by the Cato and Fraser Institutes to determine country weights.
• Investing in countries with significant state ownership, like China and Russia, can be risky due to the prioritization of government interests over shareholder value, as seen in China's underperformance compared to the S&P 500.
• The exclusion of Russia from the Freedom Index protected investors from significant losses when Russian stocks plummeted after the Ukraine invasion, highlighting the risks of investing in politically unstable regions.
• Countries like Chile and Poland, which are often overshadowed by larger economies, offer significant growth opportunities for investors seeking both ethical alignment and market potential.