There’s no shortage of exchange-traded funds (ETFs) that promise innovation, but truly differentiated strategies—those designed to tackle risks that most investors don’t even see coming—are rare. Westwood’s LBRTY Global Equity ETF (ticker: BFRE) stands at the forefront of investment strategy evolution, offering a new global equity fund that takes a fundamentally different approach to country risk. BFRE doesn’t just sidestep exposure to controversial markets such as China and Russia. It addresses a broader, more structural issue: the underappreciated impact of authoritarianism on portfolio risk and performance.
In an interview with The Wealth Advisor’s Scott Martin, Drew Miyawaki, Senior Vice President and Director of Managed Investment Solutions at Westwood, discussed how BFRE (or be free) is built to systematically reduce portfolio exposure to autocratic regimes, both directly and indirectly, using a rigorous process powered by the TOBAM LBRTY® index series.
Designing a Portfolio That Respects Political Risk
For Westwood, design is everything. “One of the mottos that I and the group here live by is ‘Design Matters,’” says Miyawaki. “We believe that index decisions, index construction, index choice, are all active decisions, and they need to be thought about very, very consciously.”
BFRE stems from a foundational belief that political structure has measurable financial consequences. While many investors are increasingly wary of exposure to authoritarian countries, Miyawaki emphasizes that most available options have been “a bit blunt and a bit crude.” Simply removing Chinese or Russian companies from a portfolio’s holdings may eliminate the visible portion of the risk, but the greater danger lies beneath the surface.
“Much like an iceberg, there is the piece that you can see above the waterline, and that would be the direct exposure to those markets,” Miyawaki explains. “But the far bigger risk is the chunk of ice that’s under the waterline that you can’t see.”
The submerged portion represents indirect exposure—companies listed in democratic countries but whose revenue, supply chains, or operations are heavily tied to authoritarian markets. The hidden exposure can materialize suddenly as policy shifts or geopolitical tensions escalate, potentially creating significant and unexpected losses for investors who believed their portfolios were insulated from authoritarian market volatility.
Understanding the LBRTY Index
At the core of BFRE’s innovation is a sophisticated methodology designed to address both visible and hidden political risks in global markets. The fund tracks the TOBAM LBRTY All World Equity Index, an academically grounded benchmark that uses third-party measures of democracy to exclude autocratic countries.
“There is direct country removal,” Miyawaki explains. “We’re removing direct investments in not only China but other authoritarian markets as well.”
But the innovation lies in how the index addresses indirect exposure. Rather than relying on a static exclusion list, the LBRTY methodology dynamically penalizes companies that operate in or rely on authoritarian economies, and it rewards those with exposure to democratic markets. “It’s designed to look as much as possible like the MSCI All Country World Index,” Miyawaki says, “but removing as much of that direct and indirect exposure as possible, keeping in mind a tight enough tracking error budget.”
The methodological nuance matters significantly for portfolio construction to help ensure risk-adjusted returns aren’t compromised by hidden political exposures. For portfolios that are beholden to benchmark-relative performance, BFRE aims to offer a refined approach that aligns with traditional portfolio construction, but it addresses risks most benchmarks don’t even acknowledge.
The Real-World Implications of Authoritarian Risk
The financial consequences of political structure aren’t theoretical—they’re playing out in quarterly earnings reports and balance sheet write-downs across the market. Miyawaki highlights a stark real-world case, a well-known American fast-food chain that had to shutter hundreds of franchises in Russia after Russia invaded Ukraine.
“Those 800-plus franchises were written off at zero for this company,” he says. “That’s a blue-chip U.S. equity, and you may have thought, ‘I don’t have any Russian exposure in my portfolio,’ but if you own that company, you did.”
Such disruptions have become increasingly common across global markets. From sanctions to sudden regulatory crackdowns, authoritarian regimes often behave unpredictably. “If Russia was the problem yesterday, and if China is the problem today,” Miyawaki notes, “this BFRE methodology and LBRTY methodology seeks to help with the problem of tomorrow, which country is next.”
The strategy’s real-time relevance was underscored by events in Turkey the same week BFRE launched. After the country’s president jailed an opposition figure, the Turkish market faltered—along with global companies tied to it. “That’s another example of a single authoritarian decision causing ripple effects across portfolios,” Miyawaki says.
The unpredictability of autocratic governance has the potential to create a systemic risk factor that most traditional indexes aren’t designed to address. By taking both direct and indirect exposure into account, BFRE aims to mitigate political shocks that can reverberate through seemingly unrelated markets.
Democratization as an Investment Factor
Behind BFRE is a growing body of academic research linking democracy with better long-term financial outcomes. “Research shows that over time, democracies outperform autocracies every time,” Miyawaki says.1 The academic foundation for this approach continues to gain recognition, with the 2024 Nobel Prize in Economics awarded to researchers who specifically examined the relationship between democratic governance and economic prosperity.
“They wrote a paper on the institutions that prosper under democratic rule,” says Miyawaki. “The academic basis is there that over the long run, democracies outperform autocracies.”
Take Germany: its economic power was decimated during World War II under Nazi rule, only to flourish following rebuilding then democratization and the reunification of East and West. “There are many examples, and a lot of the academic basis delves into that,” he adds.
The democracy–performance connection isn’t just an ideological argument. Democracies tend to support more stable rule of law, freer capital flows, and stronger institutional infrastructure—all of which are essential to long-term corporate success.
Practical Implementation and Portfolio Integration
For advisors considering implementation, the flagship BFRE ETF is designed to integrate seamlessly into existing portfolio models. The fund functions as a global equity strategy constructed to mirror broad market exposure while filtering out authoritarian risk. That means it might serve as a core allocation or complement an existing global sleeve.
“We’ve started with the global opportunity set, that’s BFRE, the all-country developed and emerging equity market,” Miyawaki explains. “But we also have plans, and the methodology supports itself to smaller segments of that universe as well. We believe it works in emerging markets, it works in international ex-U.S., and it also works in just a U.S.-only type of portfolio.”
Even in U.S.-focused portfolios, the indirect exposure to authoritarian markets can be substantial. While completely eliminating authoritarian market dependencies is virtually impossible in today’s interconnected economy, BFRE’s methodology seeks to provide a systematic approach to minimizing the hidden risk. As Miyawaki notes, “We believe you can drastically reduce it, and that’s the idea.”
A Forward-Looking Strategy for a Volatile World
Markets are more interconnected than ever, and geopolitical uncertainty is only growing. For advisors trying to manage long-term risk, BFRE represents a rare combination of intellectual rigor, practical design, and moral clarity.
The strategy isn’t trying to pick geopolitical winners and losers. Instead, it’s recognizing what we believe is a structural truth: companies that operate within democratic systems are more likely to enjoy stability, legal protection, and long-term profitability. And for clients concerned about values-based principles or human rights, BFRE seeks to deliver an additional layer of alignment without sacrificing market exposure.
In a market increasingly shaped by geopolitics, BFRE offers something rare: a transparent, rules-based method for mitigating real-world risk. Clients with strong views about authoritarian regimes—or those simply looking to reduce blind spots in global exposure—might consider BFRE as a cornerstone allocation.
1Journal of Political Economy: “Democracy Does Cause Growth” (February 2019).
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Additional Resources
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Disclosures
To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the Fund’s prospectus which may be obtained by downloading at westwoodetfs.com or calling (800) 994-0755. Please read the prospectus carefully before investing.
The fund is distributed Northern Lights Distributors, LLC. Northern Lights Distributors and Westwood Holdings Group, Inc. are separate and unaffiliated.
The Fund is newly formed and has limited operating history.
As with any mutual fund or ETF, there is no guarantee that the Fund will achieve its investment objectives. You could lose money by investing in the Fund. Many factors influence a fund’s performance. An investment in the Fund is not intended to constitute a complete investment program and should not be viewed as such. All securities investing and trading activities risk the loss of capital. The principal risks of investing in the Fund could adversely affect its net asset value and total return. These include:
Equity Securities Risk: The risks associated with investing in equity securities of companies include the financial and operational risks faced by individual companies, the risk that the stock markets, sectors and industries in which the Fund invests may experience periods of turbulence and instability, and the general risk that domestic and global economies may go through periods of decline and cyclical change.
Index Provider Risk: The Fund seeks to achieve returns that generally correspond, before fees and expenses, to the performance of the Index, as published by the Index Provider. There is no assurance that the Index Provider will compile the Index accurately, or that the Index will be determined, composed or calculated accurately. The composition of the Index is heavily dependent on information and data supplied by third parties over which the Adviser has no or limited ability to oversee. While the Index Provider gives descriptions of what the Index is designed to achieve, the Index Provider does not provide any warranty or accept any liability in relation to the quality, accuracy or completeness of data in its indices, and it does not guarantee that its Index will be in line with its methodology. Because of this, if the composition of the Index reflects any errors, the Fund’s portfolio can be expected to also reflect the errors. In addition, data and information on non-U.S. countries may be unreliable or outdated or there may be less publicly available data or information about non-U.S. countries due to differences in registration, accounting, audit and financial record keeping standards which creates the potential for errors in Index data, Index computation and/or Index construction and could have an adverse effect on the Fund’s performance.
Foreign Securities Risk: Investments in foreign issuers and foreign securities (including depositary receipts) are subject to additional risks, including political and economic risks, unstable governments, civil conflicts and war, greater volatility, decreased market liquidity, expropriation and nationalization risks, sanctions or other measures by the United States or other governments, currency fluctuations, higher transaction costs, delayed settlement, possible foreign controls on investment, liquidity risks and less stringent investor protection and disclosure standards of foreign markets. In certain markets where securities and other instruments are not traded “delivery versus payment,” the Fund may not receive timely payment for securities or other instruments it has delivered or receive delivery of securities paid for and may be subject to increased risk that the counterparty will fail to make payments or delivery when due or default completely. Foreign market trading hours, clearance and settlement procedures, and holiday schedules may limit the Fund’s ability to buy and sell securities. Events and evolving conditions in certain economies or markets may alter the risks associated with investments tied to countries or regions that historically were perceived as comparatively stable becoming riskier and more volatile.
Authorized Participant Concentration Risk: Only an Authorized Participant (as defined in the “How to Buy and Sell Shares” section of this prospectus) may engage in creation and redemption transactions directly with the Fund. The Fund has a limited number of institutions that act as Authorized Participants. To the extent that these institutions exit the business or are unable to proceed with creation and/or redemption orders with respect to the Fund and no other Authorized Participant is able to step forward to create or redeem Creation Units, Fund shares may trade at a discount to NAV and possibly face trading halts and/or delisting.
Authorized Participants may be less willing to create or redeem Fund shares if there is a lack of an active market for such shares or its underlying investments, which may contribute to the Fund’s shares trading at a premium or discount to NAV.
Absence of Prior Active Market. While the Fund’s shares are listed on an exchange, there can be no assurance that an active trading market for shares will develop or be maintained. The Fund’s distributor does not maintain a secondary market in shares.
Trading Issues. Trading in shares on an exchange may be halted due to market conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to the exchange’s “circuit breaker” rules. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Fund will continue to be met or will remain unchanged. Shares of the Fund, similar to shares of other issuers listed on a stock exchange, may be sold short and are therefore subject to the risk of increased volatility and price decreases associated with being sold short.
Definitions
The TOBAM LBRTY® All World Equity Index is an index that offers broad exposure to global equities, while specifically excluding or reducing exposure to companies and countries with authoritarian regimes or those lacking democratic governance and civil liberties. The index’s methodology focuses on two levels: excluding countries lacking civil liberties and democratic rights and, within eligible countries, favoring stocks with low exposure to authoritarian regimes.
The MSCI All Country World Index captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries. With 2,558 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Tracking Error – Tracking error measures the volatility of an investment portfolio’s returns relative to a benchmark index.
Country risk refers to the potential for an investment’s returns to be adversely affected by political, economic, or social events occurring in a particular country.
Sleeve refers to a distinct portion of an investment portfolio dedicated to a specific asset class, strategy, or region.
