Rob Arnott

Rob Arnott founded Research Affiliates and developed fundamental indexation — an approach to index construction that weights stocks by economic fundamentals (sales, cash flow, dividends, book value) rather than market capitalization. He argued that traditional market-cap weighted indices systematically over-weight overvalued stocks and under-weight undervalued ones. The RAFI indices became the basis for some of the world's largest "smart beta" ETFs. Arnott has also contributed extensively to research on value investing, the equity risk premium, and the CAPE ratio. His empirical work on factor valuations — measuring whether individual factors like value, momentum, and low volatility are cheap or expensive relative to their histories — introduced the concept of factor timing as a second-order consideration beyond factor selection. He has also published research challenging the conventional equity risk premium estimates, arguing that historical US equity returns were partly driven by valuation expansion rather than fundamental earnings growth and may not be representative of future expected returns.