2025 etf.com Lifetime Achievement Award Nominee: Rob Arnott

This article is one in a series profiling finalists for etf.com’s 2025 Lifetime Achievement Award, to be announced April 23 in New York City.

When Rob Arnott was in high school, he decided he wanted to work in either asset management or astrophysics. But that choice was narrowed once he got to college and realized, “I was very good at math, but to be a world-class astrophysicist, one had to be extraordinary at math.”

Arnott's realization was indirectly responsible for the development of modern-day fundamental indexing and smart beta investing, for which he is credited with establishing.

The founder and chairman of Research Affiliates, Arnott is often referred to as the “Godfather of Smart Beta," pioneering the fundamental index approach that challenges traditional market-cap-weighted indices.

Arnott, 70, is one of five finalists in the Lifetime Achievement Award category of the 2025 etf.com Awards, which will recognize all the winners in a ceremony on April 23 in New York City.

Based in Miami Beach, Florida, Arnott has no plans of slowing down or stepping back from his leadership of the Newport Beach, California-based asset management firm he started in 2002.

“I will continue doing what I do until my mind or body gives out,” he said. “I love what I do, so why stop? If I quit, I’d be a couch potato.”

'Distribution Is King'

Research Affiliates is responsible for more than $150 billion in assets under management across exchange-traded funds, mutual funds and separately managed accounts through global licensing agreements with some of the largest asset management firms.

In the U.S., Charles Schwab Corp., Invesco and Pacific Investment Management Co. combine to license $110 billion worth of Research Affiliates' strategies across mutual funds and exchange-traded funds, which is the crux of the business model.

“The ideas are not as important from a fee perspective as is the distribution,” Arnott said. “You learn not to be greedy, because distribution is king.”

Finding Value

Raised in Southern California, Arnott went to college at the University of California, Santa Barbara, where he earned degrees in applied mathematics, computer science and economics before getting his first experience on the East Coast.

Starting as a programmer and quantitative analyst at The Boston Company in 1977, he moved through the likes of TSA Capital Management, Salomon Bros. and, later, First Quadrant, where he was chief investment officer and chairman before starting his own firm.

The most recent proof that Arnott isn’t just coasting is the September debut of the Research Affiliates Deletions ETF (NIXT), which tracks the Research Affiliates Deletions Index of between 140 and 180 companies that no longer rank in the top 500 or 1,000 by market value.

“It’s like picking up coins dropped by a rich man walking down the street,” he said, citing a 7% average 12-month outperformance of stocks cut from the big cap-weighted indexes.

As an asset manager, Research Affiliates is a quantitative research firm with a healthy tilt toward value investing. But Arnott insists, “we’re much broader than most value managers because we recognize that growth deserves a premium.”

Fundamental indexing is about weighting companies based not on their total market capitalization but on their market value in terms of an economic footprint, he said.

Arnott readily acknowledges that value investing has not been the best place to invest over much of the past decade but said the application of fundamental indexing has helped the FTSE RAFI Index outperform the FTSE All World Value Index in 17 of the last 19 years.

“RAFI looks at the whole market, then down-weights growth and upweights value, while the FTSE World Index just excludes growth,” he said.

Fundamental Indexing

Artificial intelligence highflier Nvidia Corp. (NVDA), at more than 6%, represents the second-largest weighting in the S&P 500 Index. But fundamental indexing based on Nvidia’s economic footprint ranks it between 15th and 20th largest, according to Arnott.

“Nvidia is a big company but not a ginormous company,” he said. “It is not a top three spot (in fundamental indexing) and it gets weighted down based on its economic footprint.”

This example works to illustrate some of the issues Arnott has with the modern financial markets and the way money is invested.

“I think the index fund wave is going to have a day of reckoning in the next 20 years,” he said, referencing an issue that has been gaining attention in certain corners of asset management that the lopsided nature of indexed investing is inching closer to the kind of bubble status that could burst if the pace of steady inflows transitions to steady outflows.

“If indexing is 80% of the market and a stock gets added, the indexes have to buy 80% of the total market value of the company from people who represent 20% of the market,” he said. “That’s going to create some massive disruption.”

The possible fix, he added, is “investors deciding that indexing is broken and they move away from it, but we’re not there yet, and right now indexing is far from broken.”

In the meantime, Arnott said, “The inefficiencies that indexing creates around the edges, create opportunities.”

The Challenge of AI

Another area of potential risk and opportunity Arnott sees in the asset management industry involves the application of artificial intelligence.

“AI is on a reasonably fast track to take over many occupations including asset management, and there will be some real pioneering innovations,” he said.

The challenge, he added, is moving large blocks of the asset management industry in that direction fast enough.

“I think the industry knows AI is here, but if you asked 100 asset managers if they’re using it, 90 will say yes, but most of them are probably bull----- you,” he said. “Most are probably dabbling around the edges and trying to figure out how to use it.”