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Rob Arnott on Bloomberg TV (March 1, 2017) In a wide-ranging discussion, Rob discusses his views on why valuations matter in smart beta and factor-based investing, and how performance chasing can be a disastrous way to invest. He reiterates the benefits of contrarian investing—buying what is feared and loathed and selling what is beloved. Value strategies—which have delivered some of the worse performance in the last decade— are now priced cheap and likely to provide strong future returns.
Forecasting Smart Beta and Factors: History Is Worse than Useless Past is NOT prologue. With the proliferation of smart beta and factor strategies, investors should be vigilant to the pitfalls of data mining and performance chasing. Relative valuations can predict the long-term future returns of strategies and factors —not with any short-term precision— but well enough to add material value. Useful forecasting models should furthermore address implementation costs.


MULTI-FACTOR


RAFI Multi-Factor RAFI Multi-Factor is a smart beta equity strategy that offers diversified factor exposures through allocations to value, low volatility, quality, momentum, and size.
A Smoother Path to Outperformance with Multi-Factor Smart Beta Investing You can outperform the market with substantially lower relative risk by diversifying across simple smart beta strategies based on a half dozen robust factors. Dynamically rebalancing these factor-based smart betas significantly improves returns.
Take the 5% Challenge! (or The “Lloyd Christmas” Lesson) Most retirement calculators and pension plans target a return after inflation of 5%. Mainstream asset classes producing rock-bottom yields will be hard pressed to deliver. It’s time to get real. Take the 5% Challenge. Use our portfolio builder—and our expected returns—to calculate the probability of your portfolio earning a 5% real return.


SMART BETA
How Not to Get Fired With Smart Beta Investing Lengthening the evaluation horizon, combining robust strategies, codifying investment beliefs, and improving communication can strengthen—and prolong—the principal–agent relationship.
Charting the Journey in Smart Beta Historical factor returns—net of changes in valuation levels—are much lower than recent performance suggests. In fact, many of the most popular new factors (some 458 at last count) have succeeded solely because they have become more expensive. This trend matters to investors because rising valuation levels inflate past performance, reduce potential future performance, and amplify the risk of mean reversion to historical valuations.
Rethinking Conventional Wisdom: Why NOT a Value Bias? Not all long-term sources of excess return are treated equally in portfolios, frustrating investors’ ability to meet their financial goals. Asset owners and their agents need to act now to address the primary sources of this disconnect: cognitive bias and principal–agent conflict.


ASSET ALLOCATION
Record Low Costs to Trade! Historical factor returns—net of changes in valuation levels—are much lower than recent performance suggests. In fact, many of the most popular new factors (some 458 at last count) have succeeded solely because they have become more expensive. This trend matters to investors because rising valuation levels inflate past performance, reduce potential future performance, and amplify the risk of mean reversion to historical valuations.
Next Season’s Meager Harvest in Commercial Real Estate US commercial property investors reaped high real returns over the last five years, but the climate is changing. Property prices are high, yields are low, and future expected returns portend a scantier harvest over the coming decade.
ACTIVE STRATEGIES
Systematic Global Macro The alternative factor premia of carry, momentum, and value may be combined to produce an attractive and diversifying source of investment return relative to the low yields and low returns of mainstream stocks and bonds.


Visual Insights

A smoother path to outperformance with multi-factor smart beta.

RA-Visual_Insights-002-MultiFactor_Strategies_vs_Single_Factors
Visual Insights

Not all "popular" factor strategies are a robust source of return.

RA-Visual_Insights-001-Robust_Factor_Strategies_Returns

INTERACTIVE TOOLS


OUR STRATEGIES
RAFI Strategies
RAFI Strategies RAFI strategies aim to generate excess returns versus the market benchmark through a systematic, contrarian rebalancing approach.
All Asset
All Asset All Asset strategies are global tactical asset allocation (GTAA) solutions that aim to deliver attractive real returns, equity diversification, and inflation protection via tactical long-only exposures.
RAE Strategies
RAE™ RAE systematic active equity strategies seek to generate superior risk-adjusted returns.
Global Macro
Global Macro The Global Macro strategy aims to deliver uncorrelated absolute returns through leveraged long–short exposures to liquid derivatives contracts.


Speaking Engagements
April 5: CFA LA Debate on the Merits of Non-Market Cap Weighting, Santa Monica, CA Speaker: Rob Arnott
April 27: Morningstar Investment Conference, Chicago Speakers: John West and Mike Aked
May 10: Barclays Quant Conference, Boston Speaker: Feifei Li
May 23: UBS Quant Conference, New York Speaker: Rob Arnott
June 4 to 7: FTSE Russell World Investment Forum, Newport Coast, CA Speaker: Rob Arnott
June 8: Inside ETFs Smart Beta Conference, New York Speaker: Rob Arnott
June 26: IMN Global Indexing & ETFs Conference, Dana Point, CA Speakers: Rob Arnott and Feifei Li