In this paper we take a critical look at Fundamental Indexing™ and come to several conclusions. First we believe FI should be considered active management rather than indexing. Moreover, the reason for its success in outperforming certain market benchmarks is, in our judgment, that it relies on two factor tilts that researchers have understood for years. It is possible to replicate FI returns with a variety of ETFs that employ similar factor tilts. FI does not produce an “alpha” when measured against a Fama-French (1993) three-factor risk model. Finally, it is far from.
