Investors may want to reduce exposure to the world’s largest emerging markets.
Perth Tolle, founder of Life + Liberty Indexes, warns that the Chinese model of capitalism is unsustainable.
“I think the idea that their capitalism would lead to democracy,” she told CNBC’s ETF Edge this week. “Economic freedom is necessary, but it is not a sufficient prerequisite for individual freedom.”
She runs the Freedom 100 Emerging Markets ETF. This has increased by more than 43% since the first day of trading on May 23, 2019. So far, Tolle’s ETFs have increased by 9%. Tracking the country’s biggest stocks is up 19%.
According to Tolle, the fund has never invested in China.
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Tolle spent part of her childhood in Beijing. When she started with Fidelity Investments as a private wealth advisor in 2004, Tolle pointed out that all her clients wanted exposure to the Chinese market.
“I personally didn’t want to invest in China at that point, but everyone else did,” she said. “Then I had a Russian client. “The reason I don’t want to invest in Russia is like funding terrorism.” And see how visionary it is today.
She prefers emerging economies that prioritize freedom.
“Without that, the economy would be constrained,” she added.
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ETF investor Tom Lydon, former head of Vettafi, sees China as a risky investment.
“If you look at emerging markets, not being in China from a performance standpoint means lowering volatility and improving performance,” Lidon said.
