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Andrew Hallam is the index investor for Globe Investor's Strategy Lab. Follow his contributions here and view his model portfolio here.

Few teachers upset their students on purpose. But I do it every semester.

"Broad index funds comprise every stock in a given market," I explain to my high-school personal finance class. "Nobody trades them. Actively managed funds, on the other hand, have managers at the helm, sniffing out the very best stocks."

Students guess actively managed funds are better. I agree. Then I assign a task: "Find peer-reviewed academic evidence."

I teach at a private international school in Singapore. The popular kids aren't Paris Hilton wannabes – they're future Harvard, Yale and Stanford alumni. Most are ferocious researchers. But after 40 minutes of scrolling through academic financial papers, even the brainiest kids grumble: "We can't find evidence; everything says the opposite."

"Keep looking," I respond.

Then one student quits: "Peer-reviewed academic studies say index funds are better."

The kids are right – and upset that I misled them. Yet, even the keenest ones rarely find this nugget: Index funds might be beaten – by better index funds.

Traditional indexes are cap-weighted. This means the largest, most popular stocks have the greatest influence on the index's needle. But such indexes are inferior, according to researchers and authors Robert Arnott, Jason Hsu, John West and Harry Markowitz. They argue, in The Fundamental Index, stocks with higher profit, dividends and book values should hold greater sway over popular stocks. Fundamental indexes adhere to this philosophy.

Back-tested international studies suggest such indexes outperform. But do they? To find out, I compared iShares' fundamental indexes (formerly Claymore ETFs) with cap-weighted equivalents over the past five years, ended May 31, 2014.

The iShares Canadian Fundamental Index ETF averaged 11.08 per cent compared to 8.61 per cent for its cap-weighted counterpart, iShares S&P/TSX Capped Composite Index. Despite the fundamental index's higher fee, (it costs 0.65 per cent per year), it outperformed as promised. It also gained 9.93 per cent in 2012 and 15.74 per cent in 2013, trouncing the Vanguard FTSE Canada ETF. (introduced in 2011) by 2.51 per cent and 2.62 per cent, respectively.

Winning margins were slimmer in the U.S. equity category. But the fundamental index still came out ahead. The iShares U.S. Fundamental Index averaged 18.54 per cent over the past five years, compared to 17.36 per cent for the company's U.S. cap-weighted S&P 500 index.

Although a less impressive victory, iShares International Fundamental Index also beat the iShares MSCI EAFE Index.

Studies show fundamental indexes work best in emerging markets. Yet, this is where they stumbled, in this case. The iShares Emerging Markets Fundamental ETF (CWO) gained 5.78 per cent. The company doesn't have a cap-weighted counterpart with a five-year track record (and nor does Vanguard). But CIBC does. Despite its whopping MER of 1.4 per cent, CIBC's Emerging Market index collared its cheaper fundamental challenger, averaging 6.43 per cent over five years, compared with 5.78 per cent for the fundamental product.

Rounding out the iShares offering is their Japanese fundamental index. With no iShares (or Vanguard) cap-weighted equivalent, I compared it with TD's e-Series Japanese Index.

The fundamental ETF earned 5.13 per cent, but it underperformed TD's cap-weighted fund.

Those investing equal sums into the fundamental indexes would have eked out an extra 0.46 per cent each year. More realistically, because most Canadians put the bulk of their money in broad Canadian, U.S. and International indexes (compared to emerging markets and Japanese stocks), most fundamental index investors likely outperformed those with cap-weighted products by more than 1 per cent per year.

If such an advantage continues, and the fundamental emerging market indexes perform as expected, the annual gap could widen to 2 per cent or more. Such margins would align with those of back-tested studies.

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