Fundamental Indexing and Adding Alpha – Rob Arnott

Featuring Rob Arnott

Delivering returns in a zero interest rate world has been a challenging proposition and Rob Arnott’s Research Affiliates has developed a suite of products to help institutional money managers add alpha, like the fundamental index, which provides an alternative to weighting by market cap. From a quant’s perspective, Rob also identifies some of the typical mistakes investors make, shattering a few macro myths, while addressing the problems facing the pension fund industry.

Published on
19 January, 2017
Pension System, Investment Framework, Sentiment
59 minutes
Asset class
Equities, Currencies


  • MJ

    Mike J.

    28 11 2017 21:41

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  • RW

    Raymond W.

    4 2 2017 12:50

    1       0

    Great interview .... one of the best so far.

  • RW

    Raymond W.

    4 2 2017 12:49

    0       0

    To Norman T .... your comments are limited in length if you do them on your iPad app… If you want to leave a longer comment logon to Real vision on the web.

  • MB

    Michael B.

    31 1 2017 22:21

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    Brilliant interview.

  • SS

    Scuba S.

    26 1 2017 15:04

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    Great to see the likes of Rob and Meb Faber on RV. Some people get scared by the use of "quant", but these two have really opened my eyes. Global diversification, value, and RTM work, especially for us little retail guys with limited 401k options.

  • CE

    Colin E.

    23 1 2017 19:51

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    Great interview. FNDE is the Schwab branded fundamental EM ETF. I will be interested to see how mean reversion and the Dollar play out over the next 2-4 years. Contrarianism is alive and well.

  • JR

    Jon R.

    23 1 2017 17:55

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    Insightful interview. Looking for a vehicle to isolate the fundamental value in EM that Rob referenced. Would PXH be the one?

  • AC

    Andrew C.

    23 1 2017 07:11

    1       0

    @Mr Arnott; 1929, 1999, 2007 all had outrageous euphoria. Today there is perhaps sprouts of optimism after the election but probably the skepticism phase dominates. How do you factor this in given markets are often driven by people and their emotions?

  • WP

    William P.

    23 1 2017 05:05

    1       0

    Great stuff! I guess it's time to abandon ship in the Golden State.

  • HJ

    Harry J.

    22 1 2017 21:57

    0       0

    Easy listening but I didn't have fun!
    Sounds like the retirement community is set for a tough time going forward.
    Give me something to work with.

  • CC

    Chris C.

    22 1 2017 19:16

    2       0

    Tad, that would be PXH. Check it out. Rob is one of the best. Thanks Grant for this. Would love to ask him next time you have him back his opinion of Georgj Vrba's new research on using a 30yr mean of Shiller P/E vs the long term Shiller P/E for return forecasting.

  • JA

    Johan A.

    22 1 2017 09:21

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    brilliant interview!

  • TB

    Tad B.

    21 1 2017 23:51

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    Great source of info and ideas….. Gonna have to listen to that again.
    Buying the crappy end of the 3 year trailing performance of Mutuals is an eye-opener!
    Would really love to know his preferred vehicle for capturing the bottom 'value 1/3rd' of EM stocks (the ones that are a tenth of the price of the top 1/3rd): What a great long-term hold that would be :)

  • NT

    Norman T.

    21 1 2017 17:38

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    Why are some comments so much longer tahn I was allowed to write?
    And unable to edit, too! Let me know, Milton!

  • NT

    Norman T.

    21 1 2017 17:37

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    Unfortunately for most 'advised'investors, the financial planners are still using returns they see in the rear view mirror, and will not be using the sort of clever broad enhancements that Rob's firm

  • RA

    Robert A.

    21 1 2017 00:36

    2       0

    Great interview Grant! I wish he had addressed the Bond holders in the Public Pension equation. I have always thought it to be a Tri party diliema; current employees providing the services, the retired pensioners perhaps living in another State or Country getting their monthly check and the Muni bond holders who feel they have a contractural right to be paid first. The retired pensioners believe they have a constitutional right to never have their promised benefit cut and the current employees refuse to work for free. Each of the three has a very fair and right belief that they should be paid in full and refuse to negotiate. Problem is, the pie is too small and our highest Court is going to have to rule as to how it will be divided. This is, indeed, going to be the era of "lowered expectations".

  • AH

    Andreas H.

    20 1 2017 21:10

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    Very interesting!

  • SS

    Sam S.

    20 1 2017 20:43

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    Complex work made easy to understand along with solutions to take advantage of asset protection with reasonable returns. Excellent video in re-setting my perspective on a number of future expectations. Well done! Thank you.

  • NH

    Neil H.

    20 1 2017 20:17

    2       0

    heard Rob speak many times before. he is well ahead of the crowd when thinking about future returns.

  • DF

    Dave F.

    20 1 2017 15:13

    1       0

    Fantastic - always have enjoyed his work.

  • IG

    Ivens G.

    20 1 2017 14:35

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    Wow! Great interview!

  • BC

    Ben C.

    20 1 2017 08:06

    12       1

    Notes to self: "current pricing would suggest 3-5% return for the coming 10-20 years for stocks" :: " I'm a cautious optimist on the economy - that does not mean I'm an optimist on the stock market" :: "Emerging market stocks: if you buy value stocks using the fundamental index (weighting companies according to how big they are instead of how expensive they are), you pay 8.5x sustainable long term earnings to buy half the world's GDP!" :: "Momentum is a powerful engine for short term moves in currencies, but utterly irrelevant to the 5-10 year window" :: "The strongest predictor of mutual fund performance is trailing 3-yr performance - with the wrong sign. If you buy the bottom decile of mutual funds in trailing performance, you beat the average fund by 2%"

  • T~

    Tshort63 ~.

    20 1 2017 05:45

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    Another great interview, top thinker with a unique vision. Fun to watch the math, probably the most I have had to rewind a video to double check comprehension. A fun hour!

  • SD

    Stephen D.

    20 1 2017 04:18

    6       0

    This an extraordinarily useful interview for the 'average' investor. Tremendous wisdom about investing in mutual funds and vlaue for the long term. It should be madatory viewing for anyone starting to build a portfolio. And yes, stocks and bonds are awfully expensive as he clearly and articulately explains. Yikes.

  • js

    jacob s.

    20 1 2017 00:34

    2       0

    He reminds me of Ron Swanson.

  • dd

    darrell d.

    19 1 2017 22:55

    1       0

    Great interview. He didn't quite answer the pension question and potential fall out - damn.

  • jh

    john h.

    19 1 2017 20:58

    1       2

    He doesn't understand the dollar shortage issue. His whole investment framework is fixated on 'mean reversal' which does not apply here. For e.g., the impact on the US CA deficit from shale oil production isn't going to revert any time soon.

  • GS

    Gunnar S.

    19 1 2017 19:38

    3       1

    I learn so much stuff here at real vision its incredible! I never fully understood Rob Arnott´s fundamental index until now. I just heard about him briefly on KWN, but there he never had the time to walk me through his thinking like he did here. This interview was really great thanks!

  • PB

    Pieter B.

    19 1 2017 17:32

    3       0

    High quality interview! Thank you

  • FS

    Fred S.

    19 1 2017 16:15

    6       0

    Which non-accredited funds out there are using Mr. Arnott's Fundamental Index?

  • RM

    Richard M.

    19 1 2017 16:00

    4       0

    Man, Rob Arnott is just so brilliant (and Grant's interviewing skills too)!!!

    His "fundamental" indexing has been around for ages (unfortunately I never followed up and invested in this strategy but it is certainly something I am going to look into - especially emerging markets fundamental indexing products) and his discussion about pension funds was surely sobering (Danielle DeMartino and Yves Smith have done some fantastic work in analyzing pension fund issues and it is TRULY scary stuff!!!).

    Great work RVTV!

  • GG

    Guillermo G.

    19 1 2017 15:40

    12       0

    Rob Arnott is one heck of a down-to-earth kind of investor. Not a bear, not a bull, but a guy who knows that opportunities always exist and you have to grab them. If life gives you lemons, make lemonade!

  • RM

    Rainer M.

    19 1 2017 15:22

    3       0

    Great interview and thoughts. Well done

  • EL

    Elizabeth L.

    19 1 2017 15:15

    9       0

    So happy to see Rob Arnott on RV. Truly hope he can come back again. A most valuable interview. Thank You.