Skip to Content
US Videos

Arnott: There's Some 'Silliness' in Smart-Beta Land

A proliferation of products has blurred the lines between "smart beta" and factor-based investing, says Research Affiliates' Rob Arnott.

Johnson: So this is a space that has I think historically been somewhat definitionally challenged even with respect to moniker, and we played a role in that as well at Morningstar--smart beta, strategic beta, factor-based investing... You would argue that there are important differences that investors should be aware of between what you deem "smart beta" and what others might think of more traditionally as factor investing. What are those differences and why are they important to understand? 

Arnott: Some folks have described me as the godfather of smart beta, I'm kind of flattered, although the mafia connotation, maybe not. But fundamental index opened the door for smart beta. Fundamental index doesn't win because it ties you into the fundamentals of a company, it wins because you're not weighting the company in proportion to the share price. Breaking that link means you're not automatically overweight the overvalued and underweight the undervalued.