Rob Arnott on Indexing

A recent article in Barron’s outlines recent research by “modern-day Socrates” Rob Arnott, founder of Research Affiliates, which suggests “index-fund managers are willfully ignoring low-hanging alpha—the ability to beat the market—in order to slavishly hew as closely as they can to the capitalization-weighted indexes they track.” Arnott’s analysis of S&P 500 index data from 1989 to 2017 shows that the stocks added to the index underperformed those that were “kicked out” by an average of… Read More

Rob Arnott Steers Clear of FAANG Stocks

A recent Forbes article offers a recap of an interview with Research Affiliates’ founder and CEO Rob Arnott, including his insights regarding the market and “smart beta” investing. Here are some highlights: Research Affiliates’ index investing strategy weights companies by the size of their businesses rather than market capitalization (share price). Arnott argues, “Why would you want to have a bigger investment in a company just because it got more expensive? That makes no sense.”… Read More

Market Experts Offer Predictions for 2018

A recent article in Money shares the views of a panel of market experts (including Rob Arnott, Jim Paulsen and Liz Ann Sonders, among others) regarding the state of the bull market and the risks and opportunities they see going forward. Here are some highlights: Can the bull market persist? While Sonders remains bullish, she says, “I think we have to start to be mindful of some of the risks.” Paulsen adds that he doesn’t… Read More

Podcasts of the Week: Pysh, Arnott & Thaler

By Jack Forehand — With so many great investing podcasts out there, it can be difficult to identify the best ones. Through our new Podcasts of the Week segment, I will try to help filter out the most interesting episodes and identify the podcasts I learned the most from each week. In addition, we will also take a look at a great podcast from the past via the From the Archives section. Best Episodes This… Read More

Arnott Says U.S. Stocks are “Dead Money”

The founder and CEO of Research Affiliates argues that investors should load up on emerging market  stocks and sell off overpriced U.S. equities, according to a recent Barron’s article. In a recent interview, Arnott shared his insights on the subject: Should an investor make emerging markets a larger part of their portfolio? It depends on their level of risk tolerance, Arnott says. For instance, if an investor becomes “panicky” if share price gains are not… Read More

Smart Beta Investing May Not Be So Smart

A new study has raised questions as to whether smart beta mutual funds, which are on course to reach $1 trillion in assets by the end of 2017, are as “smart as they claim to be,” according to a recent article in the Financial Times. The article quotes University of Finland finance professor Antti Suhonen, who led the research, from his report (published in May): “Investing in smart beta does require good investor education, due… Read More

Index Fund Pioneer Warming to Computer-Generated Trading

Princeton economics professor Burton Malkiel, who started the first passive index fund for Vanguard in 1976, has experienced a “remarkable change of heart,” according to a recent article in the New York Times. Referencing Malkiel’s revolutionary notion that dart-throwing monkeys could pick winning stocks as well as market “experts,” the article says the “index-fund evangelist” now believes, “Maybe the experts can beat the monkey after all. That is, if the experts are software engineers writing… Read More

Rob Arnott Says U.S. Stock Valuations Are a Worry

Rob Arnott, founder and CEO of Research Affiliates, says investors should “avoid U.S. stocks and buy emerging market equities to outperform in the coming years,” according to a recent CNBC interview. Arnott was a pioneer in developing indexing strategies that weight portfolio holdings according to valuation measures rather than market capitalization (a strategy typically used by passive index funds) and therefore overweights undervalued companies and underweights overvalued companies. The article cites data on the Research… Read More

Rob Arnott Questions Use of the Smart Beta Strategies He Pioneered

Rob Arnott, founder of Research Affiliates LLC, published a paper earlier this month in which he questions the use of some “smart beta” investment strategies he pioneered, according to a recent article in The Wall Street Journal. Arnott, known by many as the “godfather of smart beta,” says the popularity of some passive-investing strategies are making them expensive, and has “built tools that he says will help investors determine which strategies are overpriced.” In the… Read More

The Math of Stock Picking Works Against Active Managers

The concentration of gains in a minority of index fund holdings—a statistical concept called positive skew—makes it extremely difficult for active managers to beat benchmarks, according to a recent Bloomberg article. Research conducted in 2015 found that “the distribution of returns in the stock market is bizarrely lopsided,” the article argues. “It’s a pattern of returns that virtually ensures everyone outside of an indexer owns mostly deadbeat stocks.” According to Rob Arnott of Research Affiliates: “The focus… Read More