In the latest episode of the ETF Prime podcast, Research Affiliates founder and board chairman and industry legend Rob Arnott joined host Nate Geraci. Arnott and Geraci covered some key topics for investors right now, from navigating oil shocks to AI. The duo also discussed the ETF RAUS, which tracks the Research Affiliates Cap-Weighted Index (RACWI).
See more: Three Income ETFs to Watch Amid U.S.-Iran Volatility
The podcast arrived amid the continuing U.S.-Israeli attack on Iran, significantly disrupting oil markets. Geraci invited Arnott to offer his view on how continued conflict and geopolitical shocks like the conflict impact markets short and long term.
“I view geopolitical shocks like Iran as catalysts that create market inefficiencies," Arnott told Geraci. “That is to say, people react and they don’t look past the crisis. The result is you get significant market moves that ultimately tend to mean revert.”
Oil, Conflict, and Investing
Arnott explained that even with a weeks-long closure of the critical Strait of Hormuz, which could drive oil prices up above $200 a barrel, markets would eventually revert to conditions prior to the conflict. He compared the oil price spike to the Liberation Day tariffs which he believed at the outset would be a one time price spike.
“That’s a one-off step in pricing and the result of that moderates when the Straits of Hormuz eventually reopens,” Arnott said. “I view the shocks happening today as catalysts that move markets further away from where they ought to be, simplifying creating inefficiencies that aren’t that difficult to exploit.”
The two also discussed whether valuations are too high, the future of AI, and the RACWI US ETF (RAUS). RAUS currently charges zero basis points to track Research Affiliates’ RACWI index. The fund launched this past September.
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