Rob Arnott — “The S&P 500 Index is a Growth-Tilted, Momentum-Chasing, Active Strategy”

Published on
July 31st, 2020
Duration
66 minutes

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30

Rob Arnott — “The S&P 500 Index is a Growth-Tilted, Momentum-Chasing, Active Strategy”

The Interview ·
Featuring Rob Arnott and Michael Green

Published on: July 31st, 2020 • Duration: 66 minutes

Rob Arnott, founding chairman of Research Affiliates, is one of the most influential quantitative investors and researchers of the last 30 years, having produced over 100 academic papers in a career that began before the term quant had even been coined. In this interview with Mike Green, chief strategist and portfolio manager at Logica Capital Advisors, Arnott argues that the current period is extremely reminiscent of the late 90s, the last time that value investing was declared surely dead. Together Arnott and Green discuss the structural factors related to indexing that have caused the return of calls of the death of value and debate whether these forces can be calmly unwound by the natural mean reverting tendencies of markets or whether the freight train of "passive" indexation has too much steam to be stopped by anything less than a catastrophic crescendo with an abrupt and devastating end. Filmed on July 28, 2020.

Comments

Transcript

  • PB
    PHILLIP B.
    6 August 2020 @ 00:55
    0 0
    Suits and ties for MG and guest? Whoah! I'm thrown. Let me catch my balance!
  • ar
    andrew r.
    4 August 2020 @ 22:29
    0 0
    It's been a while since I last saw Rob Arnott, and it was refreshing. Good thinker, good speaker also. MG great as usual.
  • JS
    J S.
    4 August 2020 @ 15:57
    0 0
    Please add transcript. Thank you.
    • JS
      J S.
      4 August 2020 @ 15:59
      0 0
      Sorry, got it. Thank you.
    • OC
      O C.
      4 August 2020 @ 22:15
      0 0
      Where are you seeing the transcript/captions? It is not visible on my screen.
  • AN
    Alan N.
    4 August 2020 @ 19:27
    0 0
    Took the best part of an hour (and RAFI sales material) but Mike finally managed to get Rob break the fourth wall. Look forward to the next one, if his marketing team allow him back ;)
  • TK
    Thomas K.
    3 August 2020 @ 18:41
    3 0
    Epic interview
  • SS
    Steve S.
    31 July 2020 @ 18:13
    3 1
    LOL wearing a suit and tie on a Zoom interview. Hilarious.
    • NK
      Nick K.
      3 August 2020 @ 16:35
      3 0
      Must have been excited about this discussion and his guest. With good reason too.
  • DD
    Dmitry D.
    3 August 2020 @ 11:28
    2 0
    Great conversation, will watch it again in a short while as there is a lot to digest. I really hope to see a round 2 in due course as Mike suggested.
  • AM
    Alexander M.
    3 August 2020 @ 08:00
    1 0
    #underlyingdynamicssquad
  • Jk
    Jyothi k.
    3 August 2020 @ 07:22
    1 0
    Wonderful conversation. There is a comment about price to book comparison around the 46th minute. While 11x dispersion in growth stocks (tech dominated i am presuming) vs value currently compared to 9x during tech boom seems to be case of a bubble, it would be better to know the ROE profile of growth businesses in 1999 vs now. My hunch is that ROE profile and earnings is significantly superior now compared to 99. Any idea where we can find this data?
  • mB
    marc B.
    3 August 2020 @ 03:21
    2 0
    Wow! Powerful!
  • JO
    J O.
    2 August 2020 @ 20:11
    2 0
    Great discussion. Two incredibly smart guys.
  • JP
    John P.
    2 August 2020 @ 19:47
    7 0
    I'm a simple man. I see a Mike Green interview. I click play.
  • JK
    John K.
    31 July 2020 @ 21:37
    5 0
    I found the book if anyone is interested. It’s called “Ubiquity” by Marc Buchanan
    • YS
      Young S.
      2 August 2020 @ 17:00
      1 0
      Thanks! I was trying to find this book, or write a comment to ask what the name of the book was!
  • PH
    Petter H.
    2 August 2020 @ 16:47
    1 0
    Halfway through this interview I already knew that I will watch this again many times to soak up all the gems.
  • VR
    Vladimir R.
    2 August 2020 @ 16:28
    4 0
    Great interview Real Vision!
  • BB
    Bill B.
    2 August 2020 @ 09:30
    6 0
    I have watched a lot of Real Vision videos. I get something useful out of all of them. But this was, hands down, the single most insightful interview I’ve ever watched on the platform. Thank you very much Mike and Rob.
  • HC
    HIMANSHU C.
    2 August 2020 @ 02:09
    1 0
    Good conversation but ultimately only 2 things matter for a normal investor which were not addressed properly : 1. Why do the vast majority of active funds underperform? 2. If passive is active then why can’t the original active funds charge 0.04% fees? We can call it whatever but why would any investor pour money in an underperforming + expensive fund?
    • AC
      Andrew C.
      2 August 2020 @ 02:32
      1 0
      I agree. Investors have gotten ripped off by the 2&20 crowd. Hence the rise of indexing
  • LP
    Lauri P.
    1 August 2020 @ 21:15
    1 0
    Absolutely phenomenal! Lots to digest, will be watching again at some point.
  • FB
    Frank B.
    1 August 2020 @ 19:16
    8 0
    Rob Arnott was well worth the wait and Mike Green was the perfect person to interview him. Thank you RV for setting this up!
  • KG
    Kurt G.
    1 August 2020 @ 17:05
    11 0
    Rob Arnott is such a pleasure to listen to. He’s a quintessential gentleman, brilliant, and yet incredibly plain spoken. Mike did a really nice job getting Rob to weigh in on some topics I hadn’t heard him speak on before. Can’t wait for a follow up interview in 6-12 months.
  • BF
    Bill F.
    1 August 2020 @ 15:14
    2 0
    extremely thought provoking (no surprise)...thanks guys.
  • MR
    MARK R.
    1 August 2020 @ 13:24
    2 0
    Gonna plot up in a park (36c here today) with a few Grimbys and listen to this a few times. Anti momentum triggers/pre events have been my best short entries on single stocks for a while now. Neg skew dynamics are what I spend all day looking for , these guys use words really nicely to encompass what it’s all about. Cheers!
  • VS
    Valtteri S.
    31 July 2020 @ 17:04
    4 0
    This closing of the markets concept has been on my mind lately and from the comments seems that I am not the only one. I get that if this is the result of a downward spiral on the markets and gets extended for longer period of time, there's a risk of massive repricing event. The full scale implications of this are not clear to me. I am writing this to get a conversation going or to acquire links to some good research. Obviously, I would be thrilled to see RV make a video about this, or is this an unknown unknown? I would guess that the banking industry would get caught in a bad spot. I would like to think that some debt free companies would survive the event. Exiting the system seems like an option. The greed in me argues that certain commodity producers might benefit immensely. Any thoughts?
    • DB
      David B.
      1 August 2020 @ 10:57
      0 0
      the price action of the financials over the last two years certainly suggests a “bad spot” or two in their future.
  • CL
    Chuck L.
    1 August 2020 @ 00:54
    3 1
    Zimbabwe StockExchange was shut down again this month (Bloomberg article 7/6/2020): With inflation raging at 786% rate and the stock market up 7X YTD in local currency, the government suddenly shut down the ZSE again, making it impossible for investors to access their money. The Z$ was fixed at parity with USD in February 2019, but now is quoted at 64/USD, with black market price over 100. Zimbabwe is in arrears on US$8 billion of debt to foreign lenders.
    • DB
      David B.
      1 August 2020 @ 10:54
      0 0
      Right! Milton Berg- another great realvision interview, said recently that the USMarket will never be higher than now- in real terms.
  • JL
    Joseph L.
    31 July 2020 @ 19:56
    4 0
    What's the catalyst that causes this to end? Unemployment is the catalyst. Unemployment among middle-income and upper-middle-income corporate workers who are forced to liquidate 401k accounts to maintain a living standard.
    • JL
      Joseph L.
      31 July 2020 @ 19:59
      3 0
      Up to this moment, unemployment has been concentrated in lower-income workers who don't have a 401k or have a tiny 401k account. Furthermore , their incomes have been more than completely replaced by the enhanced unemployment benefits. So those workers haven't needed to liquidate 401k assets. But......unemployment will creep into higher income sectors of the labor force and enhanced unemployment benefits are dissipating. There is your selling pressure mechanism.
    • DB
      David B.
      1 August 2020 @ 10:48
      0 0
      Another potential catalyst is foreign investors vacating the market with the depreciating currency. Foreign money starts leaving, dollar keeps dropping,, stocks lose some support, dollar keeps dropping and market loses more support and on and on. But with the expansion of money supply there is no reason that the market can’t go up in nominal terms. See the Zimbabwe reference below
  • it
    ian t.
    1 August 2020 @ 10:29
    2 0
    >Brilliant!
  • IW
    Ian W.
    1 August 2020 @ 08:58
    5 0
    Wow... this has been one of my favorite interviews of the year. Thanks so much to both of you for the deep dive!
  • SS
    Shanthi S.
    1 August 2020 @ 06:40
    3 0
    Have come to expect to be mind blown by anything with which Mike Green is involved. This was no exception. Will check out Rob’s research. Thank you both very very much.
  • MM
    MARTIN M.
    1 August 2020 @ 05:21
    1 0
    Excellent interview, start to finish!
  • pm
    patryk m.
    1 August 2020 @ 00:24
    2 0
    Mind blowing
  • DM
    Dominic M.
    31 July 2020 @ 23:18
    3 0
    Fantastic conversation. Many thanks to Rob Arnott for taking the time.
  • TB
    Tad B.
    31 July 2020 @ 22:23
    1 0
    Superb!
  • DA
    Daniel A.
    31 July 2020 @ 22:06
    3 0
    What is the name of the book he is talking about?
  • JS
    JEVGENI S.
    31 July 2020 @ 21:36
    0 0
    Worth more than a *Coin ;)
  • JK
    John K.
    31 July 2020 @ 21:34
    0 0
    Where’s the book mike
  • rc
    ritesh c.
    31 July 2020 @ 20:52
    2 0
    What a great interview and masterclass! Thank you Rob and Mike, Cheers!
  • SS
    Steve S.
    31 July 2020 @ 18:19
    24 0
    Mike Green is indispensable to Real Vision now. He is the GOAT.
  • MB
    Mike B.
    31 July 2020 @ 17:33
    4 0
    Wow. GREAT content. RV is really getting good.
  • TE
    Tito E.
    31 July 2020 @ 16:04
    13 0
    I never wear a tie but i probably would for Rob Arnott
  • SH
    Sean H.
    31 July 2020 @ 16:01
    5 0
    Great interview on both ends. Thanks gentlemen.
  • AA
    ALI A.
    31 July 2020 @ 15:21
    6 0
    Mike at his best.... always a pleasure....
  • HD
    Henock D.
    31 July 2020 @ 14:45
    10 0
    Only watched 10 seconds so far and know this is going to get serious. Mike Green never dresses up to this extent for an interview. Excited to learn from these two legends
  • HK
    H K.
    31 July 2020 @ 13:50
    8 0
    We need to have this non-stop stream of thought from Mike Green, interspersed with these interviews as a live channel. Great piece
  • OT
    Omar T.
    31 July 2020 @ 11:02
    1 0
    Can Michael Green share some of his research on “how this ends” both we’re familiar with it but it wasn’t really explained in the video. Thanks!
    • JM
      John M.
      31 July 2020 @ 12:45
      20 0
      He’s gone over it extensively both here on RV as well as his various podcast appearances over the past year in particular. I recommend his recent appearance on Grant Williams’ podcast “the end game” as a starting point of you haven’t already.
  • KR
    Kiril R.
    31 July 2020 @ 12:28
    41 0
    Mike Green is one of the best contributors on RV. His interviews are really good!
  • NR
    Nathan R.
    31 July 2020 @ 10:58
    20 1
    Druckenmiller says to look for three things when you are hiring a manager: passion, bear market performance and humility. If today is analogous to 1999, when Rob was fired for 40 bips and Mike was the dumbest man in the world, I am comforted that perhaps we are closer to the lemming cliff than it seems. As a minnow-sized manager, watching this gives me hope the entire world has not taken leave of its senses. Love the dual subversive necktie display....

Chapters

  1. 00:02:58
    Historical Analogs with the Late 90s
  2. 00:06:57
    The S&P 500: A Growth-Tilted, Momentum-Chasing, Active Strategy
  3. 00:29:04
    More Common Misconceptions and Insight into Indexing Methodology
  4. 00:43:40
    Mean Reversion, Value Investing, and Bubbles
  5. 00:50:57
    The Bubble Endgame Question and Managing Risk in the Meantime