I believe this is not allowed by the IRS because ETFs tracking similar indices would be considered 'substantially identical', but I'm not sure [1]. If it is allowed, then you're right - this would be the most efficient way to implement tax loss harvesting.
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
1. Buy substantially identical stock or securities,
2. Acquire substantially identical stock or securities in a fully taxable trade,
3. Acquire a contract or option to buy substantially identical stock or securities, or
4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.
Different indices are not substantially identical.
Different ETFs tracking the same index (e.g., SWPPX and VOO) are likely to be determined substantially identical. (I don't know that the IRS issued guidance on this yet.)
Yes, they choose different indices precisely because of wash sale rules.
E.g., VTI vs SCHB. VTI tracks the "CRSP US Total Market" index, while SCHB tracks the "DJ Broad US Market" index (note, this is not the same thing as the DJIA). Those indices are not comprised of disjoint subsets of the total stock market.
Additionally, large index funds have enough capital to just buy all of the components (100s-1000s) without sampling. Thirty funds doesn't really do it justice. It can also miss out on big winners, which is where lots of growth comes from.[1]
[0]: https://research.wealthfront.com/whitepapers/tax-loss-harves... [1]: http://www.efficientfrontier.com/ef/900/15st.htm