Traditional finance often treats growth and value as a single spectrum. Arnott reframes this, stating they are two distinct dimensions: a company's growth speed (fast/slow) and its valuation (cheap/expensive). This challenges the common practice of labeling any expensive stock as "growth."
The RAFI Growth Index selects companies based on high percentage growth but weights them by the absolute dollar magnitude of that growth. This prevents tiny, speculative companies with explosive percentage gains from dominating the index, instead favoring firms with a larger, more stable economic impact.
Despite their market dominance, Amazon and Microsoft are excluded from the RAFI Growth Index. Their percentage growth in sales, profits, and R&D is no longer fast enough to rank in the top quartile of U.S. companies, challenging the assumption that all mega-cap tech stocks are automatically high-growth.
Rob Arnott warns that most impressive backtests fail because they are "data-mined"—designed to fit historical data. His firm uses the scientific method: form a logical hypothesis first, then use data only for testing. This approach creates more robust strategies that are less likely to falter when market conditions change.