Rob Arnott is out of the index game.

But the longtime investor, whose firm Research Affiliates was known for its "smart beta" approach to indexing, is still actively hunting for values.

Arnott thinks investors need to look beyond the big tech stocks that dominate the passively run indexes like the S&P 500 and Nasdaq 100.

"The market is still frothy and expensive," Arnott said in an interview with Barron's. "It's predicated on this narrative that today's winners will be tomorrow's winners and the notion that massive spending on AI will continue."

With that in mind, Arnott said that his newly named firm, Syzygy Asset Management, will use the more than $30 billion in assets it manages, as well as funds it subadvises for Pimco and Russell Investments, to look for opportunities across all sectors.

"It's a simple concept," Arnott said. "You want underlying fundamentals to validate the price moves."

At Research Affiliates, the firm would weight stocks by sales, cash flow and other financial metrics as opposed to market value. He sold the firm's RAFI Indices business to TMX VettaFi in September for $490 million.

Arnott has rebranded what's left of Research Affiliates as Syzygy Asset Management.

Syzygy, which might have some Wheel of Fortune fans looking to buy a vowel, refers to the phenomenon in astronomy when celestial objects (usually the Sun, Moon and Earth) are in a straight line during an eclipse.

But despite the name change, the strategy is the same.

One stock that Arnott mentioned was Cheniere Energy, a producer of liquefied natural gas that's trading at just 15 times earnings estimates for the next 12 months.

Arnott is finding attractive opportunities in other sectors as well that are also continuing to post solid levels of growth, such as JPMorgan Chase and Merck. JPMorgan Chase trades for just 13 times earnings estimates for the next 12 months while Merck's forward P/E ratio is 18.

"None are terribly expensive," Arnott said, adding that both stocks rank in the top 25% of companies it looks at based on projected growth rates for sales, earnings and other key metrics.

And this strategy of finding reasonably priced growth stocks doesn't mean that you have to exclude technology and the Magnificent Seven. Arnott said that while Microsoft and Amazon both just miss the cut for its active strategies, Alphabet is on the firm's list of stocks within the top 25% of fastest-growing companies -- and it now trades for less than 19 times earnings forecasts for the next 12 months.

Arnott also thinks U.S. small-caps and emerging market stocks, excluding the big AI names like Taiwan Semiconductor and South Korea's SK Hynix and Samsung that have propelled many emerging market indexes and funds higher, are attractive.

"There are pockets of value," Arnott said. "The marketplace is littered with bargains."

It's a mantra that many other fund managers are starting to preach following the recent volatility in the tech sector. Diversification may not sound sexy. But it's a way to protect yourself at a time when AI concentration risks are still top of mind.