Robert D. Arnott
Encyclopedia
Robert D. Arnott is an American
entrepreneur, investor, editor and writer who focuses on articles about quantitative investing
. He is the father of Richard Wiles-Arnott, Sydney Arnott, and Robin Arnott. He edited the CFA Institute
's Financial Analysts Journal from 2002–2006, and has edited three books on equity management and tactical asset allocation
. He is a co-author of the book The Fundamental Index: A Better Way to Invest.
Arnott has also served as a Visiting Professor of Finance at the UCLA Anderson School of Management, on the editorial board of the Journal of Portfolio Management
, the product advisory board of the Chicago Mercantile Exchange
, and the Chicago Board Options Exchange
. He previously served as Chairman of First Quadrant, LP, as global equity strategist at Salomon (now Salomon Smith Barney), president of TSA Capital Management (now TSA/Analytic), and as vice president at the Boston Company.
Arnott has received five Graham and Dodd Scrolls and Awards, awarded annually by the CFA Institute for best articles of the year, and has received two Bernstein-Fabozzi/Jacobs-Levy awards from the Journal of Portfolio Management and Institutional Investor magazine.
-based investment management firm that manages over $50 billion in assets. The firm has been involved with fundamentally based indexes
since mid-2004 and has worked with the FTSE Group
to create indices based on this methodology.
On January 8, 2006, Research Affiliates sold a minority interest
in the company to Nomura Asset Management
.
In November, 2009, Research Affiliates was granted a patent for their index methodology that selects and weights securities using fundamental measures of company size.
.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
entrepreneur, investor, editor and writer who focuses on articles about quantitative investing
Quantitative investing
Quantitative investing represents an investing technique typically employed by the most sophisticated, technically advanced hedge funds. These quant shops employ fast computers to find predictable patterns within financial data. Some of the larger quant shops include but are not limited to...
. He is the father of Richard Wiles-Arnott, Sydney Arnott, and Robin Arnott. He edited the CFA Institute
CFA Institute
CFA Institute is headquartered in the United States of America at Charlottesville, Virginia, with offices in Hong Kong and London. Formerly known as the Association for Investment Management and Research , CFA Institute awards the Chartered Financial Analyst designation...
's Financial Analysts Journal from 2002–2006, and has edited three books on equity management and tactical asset allocation
Tactical asset allocation
Tactical asset allocation is a dynamic investment strategy that actively adjusts a portfolio’s asset allocation. The goal of a TAA strategy is to improve the risk-adjusted returns of passive management investing...
. He is a co-author of the book The Fundamental Index: A Better Way to Invest.
Arnott has also served as a Visiting Professor of Finance at the UCLA Anderson School of Management, on the editorial board of the Journal of Portfolio Management
Journal of Portfolio Management
The Journal of Portfolio Management is a quarterly academic journal covering asset allocation, performance measurement, market trends, risk management, and portfolio optimization. The journal was established in 1974 by Peter L. Bernstein. The current editor-in-chief is Frank J...
, the product advisory board of the Chicago Mercantile Exchange
Chicago Mercantile Exchange
The Chicago Mercantile Exchange is an American financial and commodity derivative exchange based in Chicago. The CME was founded in 1898 as the Chicago Butter and Egg Board. Originally, the exchange was a non-profit organization...
, and the Chicago Board Options Exchange
Chicago Board Options Exchange
The Chicago Board Options Exchange , located at 400 South LaSalle Street in Chicago, is the largest U.S. options exchange with annual trading volume that hovered around one billion contracts at the end of 2007...
. He previously served as Chairman of First Quadrant, LP, as global equity strategist at Salomon (now Salomon Smith Barney), president of TSA Capital Management (now TSA/Analytic), and as vice president at the Boston Company.
Arnott has received five Graham and Dodd Scrolls and Awards, awarded annually by the CFA Institute for best articles of the year, and has received two Bernstein-Fabozzi/Jacobs-Levy awards from the Journal of Portfolio Management and Institutional Investor magazine.
Writing
Arnott has published over 70 academic papers in refereed journals. Topics of these papers have included mutual fund returns, the equity risk premium, tactical asset allocation, and alternative index investing.- 2000, "Investment Management Reflections," with Andrew L. Berkin and Jia Le. This paper argued that not only did 75% of actively managed equity mutual funds underperform the VanguardThe Vanguard GroupThe Vanguard Group is an American investment management company based in Malvern, Pennsylvania, that manages approximately $1.6 trillion in assets. It offers mutual funds and other financial products and services to individual and institutional investors in the United States and abroad. Founder...
S&P 500S&P 500The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
Index FundIndex fundAn index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.-Tracking:Tracking can be achieved by trying to hold all of the...
but that after taking into account taxation, 66 out of the 71 mutual funds in the sample underperformed. A later study that looked at the 1990s found that 322 out of 355 mutual funds in the sample underperformed the Vanguard S&P 500 Index Fund after tax.
- 2002, "What Risk Premium is 'Normal'?" with Peter Bernstein. This paper argued that much of previous stock market returns had come from price-to-earnings ratio expansion and dividend yields, the former of which is unsustainable and the latter of which is historically low. Therefore, stock marketStock marketA stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
returns will be lower in the long-term than they have historically been. Arnott and Bernstein were awarded the GrahamBenjamin GrahamBenjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
and DoddDavid DoddDavid LeFevre Dodd was an American educator, financial analyst, author, economist, professional investor, and in his student years, a of, and as a postgraduate, close colleague of Benjamin Graham at Columbia Business School.The Wall Street Crash of 1929 almost wiped out Graham, who had started...
Award for excellence in financial writing for this article.
- 2003, "Surprise! Higher Dividends = Higher Earnings Growth," with Cliff AsnessCliff AsnessClifford Scott 'Cliff' Asness is an American hedge fund manager and quantitative financial theorist.-Background:After graduating with dual degrees from the University of Pennsylvania, Cliff Asness entered the finance PhD program at the University of Chicago and became the research assistant to...
. This paper stated that against traditional theory, that the more a public companyPublic companyThis is not the same as a Government-owned corporation.A public company or publicly traded company is a limited liability company that offers its securities for sale to the general public, typically through a stock exchange, or through market makers operating in over the counter markets...
paid out in dividends, the greater that company's earningsEarningsEarnings are the net benefits of a Corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several more specific terms are used as EBIT -- earnings before interest and taxes, EBITDA - earnings before...
grew. Results were statistically significant and robust with respect to time period and after controlling for the investmentInvestmentInvestment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
-to-GDP ratio, earnings yield, and the slope of the yield curveYield curveIn finance, the yield curve is the relation between the interest rate and the time to maturity, known as the "term", of the debt for a given borrower in a given currency. For example, the U.S. dollar interest rates paid on U.S...
.
- 2005, "Fundamental Indexation" with Jason Hsu and Phil Moore. This paper introduced the idea of weighting indices by fundamentals instead of capitalizationMarket capitalizationMarket capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
, stating that indicesIndex fundAn index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions.-Tracking:Tracking can be achieved by trying to hold all of the...
weighted by fundamentals tend to outperform indices weighted by capitalization with similar volatilityVolatility (finance)In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
. This paper was the recipient of the William F. Sharpe best-index related research paper award. Research Affiliates's fundamentally based indexes won the award for the most innovative benchmark index.
- 2008, The Fundamental Index: A Better Way to Invest. This book, published by Wiley Press and co-authored with Jason Hsu and John West, examines in detail how the Fundamental Index approach to investing can overcome the structural return drag created by traditional capitalization-weighted index strategies.
Research Affiliates, LLC
In 2002, Arnott founded Research Affiliates, a Newport Beach, CaliforniaNewport Beach, California
Newport Beach, incorporated in 1906, is a city in Orange County, California, south of downtown Santa Ana. The population was 85,186 at the 2010 census.The city's median family income and property values consistently place high in national rankings...
-based investment management firm that manages over $50 billion in assets. The firm has been involved with fundamentally based indexes
Fundamentally based indexes
Fundamentally based indexes are indices in which stocks are weighted by one of many economic fundamental factors, especially accounting figures which are commonly used when performing corporate valuation, or by a composite of several fundamental factors...
since mid-2004 and has worked with the FTSE Group
FTSE Group
FTSE Group is a world-leader in the provision of global index and analytical solutions. FTSE calculates indices across a wide range of asset classes, on both a standard and custom basis...
to create indices based on this methodology.
On January 8, 2006, Research Affiliates sold a minority interest
Minority interest
Minority interest in business is an accounting concept that refers to the portion of a subsidiary corporation's stock that is not owned by the parent corporation...
in the company to Nomura Asset Management
Nomura Holdings
Nomura Holdings, Inc. is a Japanese financial holding company, and a principal member of the Nomura Group.In October 2008 the company acquired Lehman Brothers Holdings's investment banking and equities unit in Asia and Europe and kept on most of its employees. Nomura paid $225 million for the...
.
In November, 2009, Research Affiliates was granted a patent for their index methodology that selects and weights securities using fundamental measures of company size.
Education
Arnott graduated summa cum laude from UCSB in 1977 in economics, applied mathematics and computer science. While a high school student in 1970, he attended the Summer Science ProgramSummer Science Program
The Summer Science Program is an intense six-week summer program for intellectually talented high school students. The program is based on a collaborative research project in celestial mechanics. Students study astronomy, physics, spherical trigonometry, and calculus while working to take...
.