Smart beta pioneer looks to shake up cap-weighted indexes

Rob Arnott says investors can easily avoid hidden costs of traditional indexes

Rob Arnott has spent two decades making the case against funds that slavishly track the market index. Now he’s offering fresh ideas on how those funds can improve performance.

The market cap-weighted indexes that form the backbone of equity investing select frothy stocks and discard cheap ones by design, Arnott says. Index deletions beat additions by 22% in the year after they occur, research by Arnott and his colleagues at Research Affiliates has found. “That,” he says, “is a staggering margin