Funds Group: Alpha Architects
Management Company: Empowered Funds LLC
Funds Affected: Freedom 100 Emerging Markets ETF
Principal Sustainable Investment Management Strategy: Thematic investing, negative screening (exclusions)
Summary:
Country inclusion and weights are determined based on quantified data covering 79 personal and economic freedom factors. Factors are categorized into three main types of freedoms: the rights to life (such as absence of terrorism, human trafficking, torture, and political detentions), liberty (such as rule of law, due process, freedom of the press, freedom of religion, freedom of assembly), and property (such as marginal tax rates, access to international trade, business regulations, established monetary and fiscal institutions, and size of government). A quantitative model is used to weigh the countries based on human and economic freedom metrics that compiled by the Cato Institute, Fraser Institute, and the Friedrich Naumann Foundation for Freedom.
A Freedom Score is derived using a combination of the 79 factors and the Freedom Score is translated into a relative weight for each emerging market which can be positive or negative. Emerging market countries with positive weights are included. Further, the higher a given emerging market’s Freedom Score, the higher its relative weighting while the lower a given emerging market’s Freedom Score, the lower its relative weight. State owned enterprises are excluded from the security selection process.
Freedom metrics are used to determine country level index weights but not individual securities, and the ten largest securities in each country that meet minimum market capitalization and trading volume requirements are included.
The freedom metrics are used to calibrate life, liberty and property factors:
LIFE (Civil Freedom)
- Violent conflict
- Internal organized crime
- Terrorism
- Trafficking
- Disappearances
- Detainments
- Torture
- Women’s freedoms
LBERTY (Political Freedom)
- Rule of law
- Due process
- Judicial independence
- Plurality of political parties
- Corruption and transparency
- Freedom of movement
- Freedom of expression
- Freedom of religion
- Freedom of the press
- Freedom of assembly
- Freedom of association
- Internet freedom
PROPERTY (Economic Freedom)
- Size of government
- Legal system and property rights
- Sound monetary policy
- Freedom to trade internationally
- Business, credit, and labor regulations