Prudent stock-picking can produce market-beating returns, even over long time periods or so I believe. Refuting my view are the Nobel laureate in economics whose math gave rise to the index mutual fund industry. Sharing my view are stock pickers like Warren Buffet and Peter Lynch. Going their own direction are a handful of index fund renegades, including Robert Arnott.

To understand what Arnott calls his "fundamental indexing" approach, consider that there's no such thing as truly passive investing. This column is generally based on stocks screens for clues like modest valuations, meaty dividend yields and stock purchases by company insiders things that have been shown in studies to predict handsome stock returns. The owner of an S&P 500 index fund might not realize it, but he's running a stock screen, too. The S&P 500, after all, screens the universe of companies for the 500 most expensive ones in America by stock market value. The problem is that no study has found or even suggested that the clue "most expensive" is a predictor of good returns. Quite the opposite: Low prices relative to variables like dividends, sales, profits and assets values are promising signs.

Arnott has launched an indexing approach that weights companies by precisely these four measures, and has licensed the methodology to be used in exchange-traded funds. The funds are meant to avoid the overweighting of expensive companies that Arnott says plagues traditional indexes. Critics of the approach, including some who run traditional index fund companies, argue that Arnott isn't indexing at all that he's picking stocks. Arnott counters on the web site for Research Affiliates, his investment firm, that stock indexing isn't defined by market-value weighting, but by an approach that's "formulaic, objective, transparent, historically replicable and low-turnover."

Consider the following shares stock picks for the investor who doesn't want to think about stock picks. All are exchange-traded funds. One uses Arnott's approach and the others use variations.

PowerShares FTSE RAFI US 1000 Portfolio (PRF)
Expenses: 0.39%
The name requires some translation: PowerShares markets the fund. FTSE manages the index. (The name comes from Financial Times Stock Exchange, becasue the company is jointly owned by the British paper and the London Stock Exchange.) RAFI stands for Research Associates Fundamental Index, a patented approach owned by Arnott's firm. Over 10 years ended July 31, the index produced an annual return of just over 5%, versus a slightly negative return for both the S&P 500 and Russell 1000 indexes, which weight companies by market value. If that performance gap holds, investors may come to view the quarter-century ended 2000 as the golden era of market-value weighting, when the rise of index funds funneled so much money into large companies that their shares soared as a result. Accordingly, they may come to view the popping of the dotcom stock bubble in 2000 as the moment when the golden era ended and the flaw in market-value weighting become apparent.

PowerShares Dynamic Market Portfolio (PWC)
Expenses: 0.60%
The Amex Intellidex takes an automated approach to stock selection, but it s one that's much more involved than the RAFI method. Some 2,000 stocks are graded using 25 factors based on things like valuation, timeliness and risk. Winners are selected from each sector, and the overall portfolio is balanced to avoid over-exposure to the largest companies. Since the fund's inception in May 2003, the underlying index has returned an average of about 5% a year through the second quarter of this year, besting the S&P 500 by more than (and the large-company Russell 1000 by slightly less than) a percentage point per year.

Wisdom Tree Total Dividend Fund (DTD)
Expenses: 0.28%
Wisdom Tree Investments, chaired by hedge fund manager Michael Steinhardt and advised by Wharton professor Jeremy Seigel, is relatively new. Its Total Dividend Fund, which weights companies by their dividend spending, launched in June 2006, just in time for the October 2007 stock market peak and subsequent plunge. Worse, among the hardest-hit stocks were a handful of giant banks with big dividend payments. All of that considered, the fund has held up well. Through the second quarter of this year, its underlying index lost 3.3% since inception, just over a half-point more than the broad-market Russell 3000 index. Time will tell whether the index will eventually pull ahead. My guess is it will. Income investors take note: The portfolio now yields 3.4%, or more than a percentage point more than the S&P 500 index.