Fundamental-Weighted Indexes Don't Outperform (ETF: PRF)

A Seeking Alpha reader submits: An earlier post on Seeking Alpha on ETFs mentioned Rob Arnott's work that implied that market-cap weighted indexes are intrinsically inefficient and lead to underperformance, and should be replaced by indexes weighted by companies' fundamentals, such as sales, revenues, book value, earnings, or number of employees. A reader left a comment that is so important that it merits publication as a new post. Here it is:

I was tasked to look into this for one of my bosses 5 or 6 months ago - it was actually published in the March/April FAJ (http://www.cfapubs.org/toc/faj/2005/61/2; note that Mr Arnott is the editor of the journal) and that version had some changes from the draft that he had circulated in about November of last year.

The really noticeable one was one I think a referee made him include, which was a very explicit mention of the biases that are built into it:

A Fama-French 3 factor regression shows the Fundamental Indexes have exposure to the value factor and, to a lesser extent, the size factor. Accordingly, the Fundamental indexes, net of the value and size factors, earned an estimated alpha of -0.1 percent.