Thanks to some exciting new research done by Stefan Spath and John Kirkscey, co-founders of Liberty Investment Group, we now have an "investable" index of economic freedom and a corresponding allocation methodology for investment purposes. They licensed First Trust, a major Chicago-based trust company, to create the first product based on this concept.
And just this month, First Trust announced the creation of the Index of Economic Freedom Portfolio.
Here is more, invest at your peril. I’m all for economic freedom, but these days too many people read The Economist for those countries to have grossly underpriced equity markets. The free countries are also the trendy countries, and what about regression toward the mean? Not every free country became especially free for long-term fundamental reasons.
I can imagine that the equity premium implies the existence of supra-normal returns, at least in the economically health markets. But investing in a U.S. index fund, plus a minimum cost basket of foreign stocks, is probably the best way to yield diversified high returns.
The fund, however, raises an interesting question. If you think you understand economic policy better than other people — no matter in what direction — should you not be able to beat the market? Alternatively, right now I feel I have zero special insight into global equity markets, what should I infer backwards about my understanding of economics?
Thanks to Steve, a loyal MR reader, for the pointer.