Why the Fed Can’t Forecast & Is Nvidia’s $3 Trillion*+ Valuation Sustainable? With Rob Arnott

Rob Arnott has published over 100 academic papers, co-authored several books, and his firm Research Affiliates developed the strategies behind approximately $147bn in AUM (as of March 2024, managed by some of the world’s leading financial institutions).

He has earned a reputation as a highly respected, value-orientated investor with clarity about unrealistic valuations, mean-reversion and where the investment opportunities may lie.

In this interview he shares a timely analysis of Nvidia, which achieved a valuation of over $3tn last week (surpassing Microsoft as the world’s most valuable business). We thought it was timely to listen to his perspectives given today’s highly skewed, AI obsessed, passive -besotted investing world.

Rob describes his approach to evaluating risks and returns, why he believes the US current fiscal path is unsustainable, and how his firm, Research Affiliates, have developed indices to allow investors to access more compelling opportunities.

He unpicks his view as to why narratives around much-loved tech companies may already be reflected in their share prices, why the value opportunities are profound, especially outside of the US and particularly in emerging markets.

He points out the disconnect between unloved value stocks and their underlying businesses which have been performing just fine.

Rob also discusses portfolio allocations today, building resilience in your portfolio to allow for geopolitical turbulence, and the asymmetry of owning US inflation-linked Treasuries (TIPS) vs straight treasuries.

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TOPICS:
00:00 - Introduction
00:50 - Rob’s Background
02:11 - Quantitative skills
03:42 - Fundamental Index
05:59 - Research Affiliates
07:35 - Outlook on Inflation
10:32 - Rising Fiscal Deficits
15:48 - Yields, the Dollar and Repercussions
19:06 - Interest Rates
22:16 - Valuation and Mean Reversion
26:14 - AI and Nvidia
35:02 - The Magnificent Seven
37:19 - Value Vs Growth
38:22 - The Future of AI
39:52 - Allocating Money and Value
42:27 - Value Traps
44:56 - Emerging Markets
46:48 - The Passive/Active Debate
47:50 - Index Membership Privileges and Active Management
51:21 - 60/40 Portfolio Today
53:06 - Geopolitical Turbulence and Market Volatility
54:19 - Rapid Fire Questions


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