Rob Arnott

Rob Arnott

Founder, Research Affiliates

"Often, when you test things you think are true, they're not. The gap between theory and the real world is where profits can be found," said Rob Arnott, 63, chairman of Research Affiliates, an investment management firm he founded 15 years ago.

The hallmark of Research Affiliates is Mr. Arnott's ground-breaking concept of "fundamental indexing," a subcategory of smart-beta alternative-index strategies that weights stocks not by their market capitalization but on a blend of metrics such as sales, cash, book value and dividends applied to all public companies.

"In this way, you're indexing the economy, not the market," Mr. Arnott said. "As a result, you are contra-trading — when price soars and fundamentals don't."

The idea took off quickly.

By 2007, Research Affiliates had $16 billion in fundamentally indexed assets under license and sub-advised; today, the total is $175 billion.

Describing himself as an "endlessly curious" kid, Mr. Arnott's interest in finance began when his parents, both Ph.D.s, gave him his first share of stock when he turned 9. By the time he was 15, he had read dozens of investing books.

One of Mr. Arnott's hobbies is traveling to unusual places to watch solar eclipses, which stems from his childhood interest in astronomy. He has visited places such as Bhutan, Micronesia, Antarctica and the Gobi Desert in this pursuit.

As he has aged, he has adopted a new philosophy: "I spend less time on things I don't enjoy and more time on things I do."

– Deborah Nason


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