In this episode of Investor's Podcast, Rob Arnott, the founder of Research Affiliates, shares insights on the Fundamental Index (RAFI) and how it has consistently outperformed the S&P 500. He explains its unique methodology, which focuses on weighting companies based on their business fundamentals rather than their market cap, leading to a value tilt and an impressive annual return advantage of around 2% over the past two decades. Arnott also discusses his approach to calculating the equity risk premium, noting the challenges of short-term forecasting and the likelihood of mean reversion in valuation multiples. Additionally, he introduces the NIXT index, which highlights companies that have been excluded from major indexes and shows their potential for strong future performance. This podcast is packed with valuable insights into alternative indexing strategies and long-term investment approaches.
