This week, we chat with Rob Arnott, the founder and chairman of Research Affiliates (RAFI). The firm’s intellectual property drives the management of over $200 billion in portfolios. Arnott is credited for creating fundamental indexing, better known as Smart Beta. He has published more than 100 articles in journals such as the Journal of Portfolio Management, Harvard Business Review, and the Financial Analysts Journal, where he also served as editor in chief from 2002 through 2006.
Rather than assembling an index by its market capitalization, fundamental indexing uses other metrics such as earnings, dividend yield or book value. The concept is still a passively managed fund, but one that does not get wildly over-weight certain names. The idea was pioneered by Rob Arnott of Research Affiliates (RAFI).
Arnott explains why smart beta is a superior form of index construction of stock picking active management, and provides a chance to outperform versus traditional indexing.
His favorite books are referenced here; our conversation transcript is published here. Our 2014 interview with Arnott it is still available.
You can stream/download the full conversation, including the podcast extras on iTunes, Bloomberg, Overcast, and Stitcher. Our earlier podcasts can all be found on iTunes, Stitcher, Overcast, and Bloomberg.
Next week, we speak with Torsten Sløk, Chief International Economist at Deutsche Bank Securities.
Rob Arnott’s Favorite Books
Against the Gods: The Remarkable Story of Risk by Peter Bernstein
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel by Benjamin Graham
Security Analysis: Sixth Edition by Benjamin Graham
Letters of Note: An Eclectic Collection of Correspondence Deserving of a Wider Audience by Shaun Usher
1493: Uncovering the New World Columbus Created by Charles Mann