Rethinking Indexing and the Future of Investing with Rob Arnott

In this episode of Valley Investors, Nathan Erickson welcomes Rob Arnott, Founder and Chairman of Research Affiliates, and a featured speaker at the upcoming CFA Society Phoenix Market Forecast Dinner. Rob discusses his pioneering work in fundamental indexing, the evolution of quantitative investing, and the importance of rebalancing in capturing returns. He shares insights into the limitations of traditional market-cap-weighted indices, behavioral investing biases, and the impact of indexing on market dynamics. Rob also explores the role of AI in finance, macroeconomic trends, and his cautious yet optimistic long-term outlook for global value stocks and emerging markets. Tune in for a deep dive into the future of asset management and market performance. 

Key Discussions in This Episode:  

[00:00:00] Introduction to the Valley Investors Podcast  

[00:01:00] Introduction to Rob Arnott and his achievements 

[00:03:15] Rob discusses his college journey and early interest in investing 

[00:05:00] The influence of his first stock pick at age 12 and lessons learned 

[00:06:15] The origin of the fundamental index concept and its development 

[00:09:00] Key advantages of fundamental indexing over market-cap-weighted indices 

[00:11:20] Behavioral biases in investing: why investors chase winners and avoid losers 

[00:13:00] Discussion of the "Malkiel's Monkey" paper and random portfolios outperforming active managers 

[00:17:00] Explanation of how rebalancing contributes to portfolio performance 

[00:20:20] Rob describes the structural growth tilt in cap-weighted indices 

[00:25:00] The rise of indexing and its implications for market dynamics 

[00:32:40] The creation of the NIXT strategy based on index deletions and its early success 

[00:40:00] Performance analysis of stocks removed from major indices 

[00:43:00] Rob's long-term market outlook: concerns about valuations and value stocks 

[00:46:50] The importance of macroeconomic trends and government spending in shaping economic growth 

[00:50:20] Rob’s perspective on artificial intelligence and its role in investment processes 

[00:54:10] Rob’s thoughts on the rapid pace of technological advancement 

[00:55:30] Rob shares his fond memories of visiting Arizona and his excitement about the CFA event  
  

Links:  

Research Affiliates: https://www.researchaffiliates.com/home 

Rob Arnott on Linkedin: https://www.linkedin.com/in/rob-d-arnott 

Nathan Erickson on LinkedIn: https://www.linkedin.com/in/nathanferickson/  

Cumulative Relative Wealth: https://drive.google.com/file/d/1jkOwwO_3YxiGYzwaUBTLDEZRCj-vTIWa/view?usp=sharing