The small portion of an index fund's portfolio that turns over annually (e.g., 5%) isn't passive. It actively buys stocks after they have significantly appreciated and sells them after they've declined, mimicking a poorly-timed, high-risk growth strategy.
When S&P pre-announces index changes, arbitrageurs buy the incoming stocks and sell the outgoing ones before index funds must trade. This forces the funds to transact at worse prices, creating a consistent 15 basis point annual performance drag from what is effectively legal front-running.
Stocks that are added to an index and later removed (a "flip-flop") systematically damage returns. The index buys after a 75% run-up but sells after a 70% drop. Because the index investor missed the initial gain but participates fully in the loss, the net effect is a significant performance drag.
A fundamental index like RAFI systematically generates a "rebalancing alpha" by weighting companies on economic size, not stock price. This forces it to trim stocks whose prices have soared relative to fundamentals and buy those that have fallen. This discipline leads to consistent outperformance over cap-weighted value indexes.