Every year the Heritage Foundation evaluates all the world’s countries using their Index of Economic Freedom, where a high score correlates to nearly every positive measure of a country. We then use this analysis to craft our Foreign Stock investment strategy that we call “Freedom Investing.”
This quarter, we saw that in 1-year returns ending December 31, 2021, Developed Freedom Investing had a -0.12% disadvantage, Emerging Market Freedom Investing had a +1.27% advantage, and Overall Freedom Investing had a +0.21% advantage.
On Friday, November 5, 2021, Megan Russell was interviewed by Michael Morton of Financial Planning for Entrepreneurs podcast to discuss Freedom Investing.
This quarter, we saw that in 1-year returns ending September 30, 2021, Developed Freedom Investing had a +0.70% advantage, Emerging Market Freedom Investing had a +1.64% advantage, and Overall Freedom Investing had a +0.71% advantage.
This article is part of my series where I review how Freedom Investing performs for the quarter.
Home bias is the tendency of investors to invest a majority of their assets in companies domiciled in their home country. Recency bias is the tendency for humans to believe that what has happened recently will continue to happen in the future.
While many have been following the domestic returns and recovery, fewer investors know how well foreign investments did this past year.
This means that in addition to the overall Emerging Market funds, we will have country-specific Emerging Market allocations to both Taiwan and Chile.
No one knows what the future holds for Hong Kong, but we needed to make a decision on whether it has a place in our Freedom Investing.
We believe these 26 companies will be an effective weight to add foreign healthcare to our portfolios.
In this article, I am reviewing the quantitative measurements and performance metrics of Freedom Investing to see how its risk and return compare to the EAFE Index, its benchmark.
Hong Kong has always been an anomaly: a tiny, extremely free country with an expiration date in 2047.
As a result of new fund additions, we added five new country-specific funds to our Schwab Institutional Intelligent Portfolio asset allocations.
These findings together demonstrate how Economic Freedom seems to have been a valid factor for higher expected returns than investing in the EAFE Index alone.
An analysis of changing to lower cost funds.
There are as many as 60 different stock markets around the world.
In 2003, the Goldman Sachs Global Economics Department predicted the economic and geopolitical influence of Brazil, Russia, India and China (the BRIC countries) would become increasingly visible in the developed world. We revisit those countries here.
The bonus in returns of countries with freedom over and above the MSCI EAFE foreign index ranges from 1.28% to 1.91%.
In recognition of its efforts to reduce its debt and deficit and Ireland’s return to the “free” category of the economic freedom index, I think the letter I for Ireland should be removed from PIIGS and it should return once more to just PIGS.
Under weighting Canada could have the effect of diminishing your returns. If your fund under weights Canada, consider switching to a lower cost fund which properly represents it.
In 2016, the average return of the best investment products of the Freedom Six outperformed the Vanguard FTSE Developed Markets ETF by 6.75%.
The future may be uncertain, but the markets are quite reliable in the long run.
That is a tremendous advantage for businesses in states with less regulatory burden.
Should we have a “Free Countries Asset Class” or a “Foreign Stock Asset Class?”
“We still have plenty of problems, but we’re much better than France, Britain and Germany.”
At first glance, AUNZ did not have great returns in 2014. But is that the whole story?
It is a simple thought experiment. Would you rather invest in South Korea or in North Korea?
Freedom investing beat the EAFE Foreign index by 7.92% in 2014.
Recently we did an analysis of the returns of the MSCI Country Specific Indexes
“When institutions protect the liberty of individuals, greater prosperity results for all.” – Adam Smith
Over the past decade the economically free countries have an annualized return of 11.34%. The S&P 500’s annualized return was 7.78%.
Economic freedom enriches society, lifts the poor out of poverty and respects the agency and dignity of human choice.
The portfolio of the five freedom countries has an annualized return of 11.06% over the past decade.
Economic Freedom is a good investing strategy.
Is economic freedom related to other kinds of freedoms? Does economic freedom affect personal choice?
David John Marotta was interviewed recently on radio 1070’s WINA Schilling Show discussing property rights and their importance for a free society.
This kitten invests in countries with economic freedom. Be more like this kitten.
“Until the deficit is eliminated from our budget, … there is no end to inflation; there is finally no end to taxation; and the eventual result would, of course, be catastrophe.”
Even if democracy is the principal objective, encourage the rule of law.
Property rights are among the characteristics most correlated with high levels of per capita gross domestic product (GDP).
Does a property owner have the right to use and dispose of his property as he sees fit even if that means he is being irrational, arbitrary, capricious, even unjust?
Follow-up information for 2013 AAII presentation “Dynamic Portfolio Construction in the Context of Comprehensive Wealth Management.”
“Unless we begin to close this gap, then the inevitable result will be that our debt/GDP ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow, and the dollar would inevitably decline.”
MarketWatch is seeking a top-notch writer who will bring a fresh perspective on money to the world’s investors. We believe that fresh perspective ought to include the idea of freedom investing.
Sometimes the medium term trend seems to weigh more heavily in our minds than the long or short term trends.
Countries are constantly in flux, and with all the noise of the markets, it is easy for the noise drown out the signal.
How the five countries with the most economic freedom (Hong Kong, Singapore, Australia, Switzerland and Canada) and Emerging Markets have been faring in comparison to the EAFE Index?
Freedom scores ranged from #1 in freedom Hong Kong at 89.9 to #92 ranked mostly unfree Italy at 58.8.
Over the past five years, countries with the most economic freedom averaged annual returns just below emerging markets.
Sovereign debt and deficit weigh most heavily on a country’s level of government spending, one of the ten components of freedom in the Heritage Foundation economic freedom study
We believe this is one of the times when your asset allocation should tilt foreign and overweight the handful of countries with high economic freedom.