• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

For Emerging Market ETFs, Investors Now Have More 'Freedoms'

The First Trust Bloomberg Democracies exchange-traded fund offers another choice for those eyeing the exits from China. Let's see how it stacks up against the Freedom Emerging Markets 100 ETF.
By MARK ABSSY
Mar 08, 2023 | 11:30 AM EST
Stocks quotes in this article: FRDM, EMDM

A number of emerging markets products have been shifting gears recently with outside-of-China strategies. Most fund issuers have launched new ex-China versions of existing products. The Freedom Emerging Markets 100 ETF (FRDM)  is one example of such a fund, and I've written about here before. Let's take a look at this fund against some new competition. 

The FRDM fund avoids China based not on any particular tactical premise, but rather, on the premise that China and countries like it fail to provide their citizens with civil, political, and economic freedoms. Further, because of the lack of these freedoms, the economies of these types of countries do not represent suitable, long-term investments.

FRDM is in a space occupied up until now by so-called "indie," or independent exchange-traded fund issuers, small, oftentimes, single fund issuers who rely on white label providers to get their funds launched. Recently, FRDM got some new competition, however, from none other than $220-plus billion issuer First Trust Advisors with their launch of the First Trust Bloomberg Democracies ETF (EMDM) . Let's take a look at these funds and see how they differ.

Freedom Vs. Democracy

In terms of fees, First Trust continues to implement a premium pricing model and has set the expense ratio for EMDM at 75-basis points (bps) as compared to FRDM's 49 bps. A shareholder with $1,000 invested over a calendar year would pay $7.50 in fees over that period as compared to $4.90 for FRDM. Let's move on to each strategy's methodology.

As mentioned earlier, FRDM considers civil and political freedoms as well but also makes assessments of economic freedoms. Data is sourced from the Cato Institute and the Frasier Institute.

EMDM uses underlying civil and political liberties data to determine which countries meet the minimum standards to qualify as an electoral democracy, according to the Washington D.C.-based Freedom House, a group that conducts research on and advocates for democracy, political freedom and human rights. 

"To be classified as an Electoral Democracy, a country must have a score of 7 or better in the Electoral Process subcategory, an overall Political Rights score of 20 or better, and an overall Civil Liberties score of 30 or better according to data from Freedom House," the fund prospectus states.

The index methodology goes on to direct interested readers to the Freedom House website for a more detailed description of the evaluation process. While the methodology doesn't call out economic freedoms explicitly, my take is that the reasoning here is that if a country can be described as an electoral democracy then it follows that the environment for economic mobility, ability to start businesses, and standing in international trade is favorable.

The Portfolios

On the face of it, these two funds seem like they might have more in common than not, given their focus on 10 emerging market countries that reject authoritarianism and a 100 security portfolio. While they do have eight countries in common, they only share 39 names in total. From a country exposure perspective, EMDM provides exposure to India and Peru for its shareholders and FRDM includes Poland and Malaysia. EMDM sets a security market capitalization minimum of $500 million and an average daily liquidity minimum of $2 million. FRDM selects securities from the Solactive GBS Emerging Markets Large & Mid Cap Index, which sets market capitalization thresholds by mandating that the index capture 85% of a country's market capitalization. While this may sound a little fuzzy this approach is standard for developing individual country indexes. Also, it is mostly the case that emerging markets are dominated by a small group of large and liquid names, so there aren't going to be any so-called "long tails" of very small names.

Another difference between the two funds is FRDM states it avoids owning State-Owned Enterprises (SOEs), while neither the prospectus of methodology guide for EMDM had explicit language on SOEs, at least not any I could find.

Wrap It Up

Since FRDM's launch in 2019, the fund has gathered just under $370 million in assets under management which, for what is essentially a single pair of boots on the ground during a global pandemic, is an astounding feat. I have no doubt that First Trust will be able to readily raise assets in EMDM. The question comes down to investors' understanding of the EMDM and FRDM approaches and how they may fit into an overall allocation. First Trust's investor guide for EMDM makes the broad case for emerging markets in the near-to-mid-term, so that bodes well for both strategies. Which one ends up in your portfolio comes down to understanding what each fund is doing. As they old saying goes, knowing is half the battle.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Abssy held shares of FRDM.

TAGS: Emerging Markets | ETFs | Investing | Stocks | China

More from Stocks

Market's Narrow and Dull but Not Bad

James "Rev Shark" DePorre
Mar 29, 2023 4:26 PM EDT

Here are the two things that stood out in Wednesday's trading.

Battery Maker Enovix Could Soon Be Charged Up to Rally Further

Bruce Kamich
Mar 29, 2023 2:56 PM EDT

The stock has been impressive but gains from here may be harder to achieve.

Except for Energy, I'd Be Wary of Cyclical Stocks

Bret Jensen
Mar 29, 2023 11:30 AM EDT

Another increasing concern for equities is that we are likely to see an 'earnings recession'.

Think the Market Action Is Dull Now? Just Wait for the Storm

James "Rev Shark" DePorre
Mar 29, 2023 11:15 AM EDT

Until we have a better feel for what the Fed will do, it will be hard for the market to discount what lies ahead.

Micron Stock Shows Resilience After an 'Ugly' Quarter, But Is It a Buy?

Stephen Guilfoyle
Mar 29, 2023 10:20 AM EDT

This is a tough stock or sector (memory) of the industry to love right now.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 04:00 PM EDT CHRIS VERSACE

    AAP Podcast: This Solar Company Is a Head-Turner

    Listen to my interview with Brian Roth, CEO of sol...
  • 01:56 PM EDT PETER TCHIR

    Very Cautious

    I am very cautious here. I don't like how the c...
  • 08:58 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How to Adjust Your Trading Style as Market Conditi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login