REALLY CHEAP MARKETS AND THE PANDEMIC’S HIDDEN TOLL WITH FINANCIAL THOUGHT LEADER ROB ARNOTT

May 22, 2020

Can investing be simple? With the 20/20 vision of hindsight it sure looks that way.  Had investors just decided to stay in the U.S., invest in growth stocks, especially mega-cap tech stocks they would have hit the trifecta over the last decade or more.

Has the COVID-19 pandemic changed that formula for success? It has not. If anything it seems to have accelerated and accentuated it.

The extended FAANG family known by the acronym FAANGM for Facebook, Amazon, Apple, Netflix, Google’s parent Alphabet, and Microsoft recently comprised close to 24% of the total market cap of the S&P 500, topping what dot com stocks reached at the height of the tech bubble. 

Left in the dust by this juggernaut combination of U.S mega-cap tech are other stock market sectors including value stocks, small company stocks, and international markets, particularly emerging markets.

It just so happens that those are the very areas that this week’s guest believes we should be focusing on now.

He is financial thought leader, innovator, and investor Robert Arnott, Chairman of the Board of Research Affiliates, which he founded in 2002 as a self-described “research-intensive asset management firm that focuses on innovative products.” Among the innovations that he has pioneered is fundamental indexation – building indexes with stocks based on the size of their fundamentals, such as sales, profits, cash flow, book value, and dividends, not their stock price.

The firm just published its new forecast for various smart beta strategies.

Before getting into these contrarian assumptions I will ask Arnott how the pandemic and the policy responses to it have changed his investment views.

WEALTHTRACK Episode #1647; Originally Broadcast on May 22, 2020

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ROBERT ARNOTT

MAKE SURE YOU ARE TRULY DIVERSIFIED

  • Not truly diversified until you own something that makes you uncomfortable
  • Uncomfortable usually means: unpopular, underperforming and cheap

“Uncomfortable” Assets today:

    • Value stocks
    • Emerging markets securities
    • Most inflation hedges
    • Gold (a recent exception)

CONTRARIAN FUNDAMENTAL INVESTING

  • Own an emerging market, fundamental index mutual fund or ETF
  • Emerging markets historically cheap
  • Rebalances on fundamentals not price
No stock mentions in this episode.

Bob Arnott from the WEALTHTRACK Archives:

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PANDEMIC INFLUENCE

Financial thought leader Rob Arnott considers how the COVID-19 experience has changed his life.


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