Direct Indexing: It’s All About Customization
Direct indexing: It’s a term many in the investment community seem to have latched on to. And it neatly and efficiently gets at what high-net-worth investors increasingly seek: ETF-like market exposure with access to the underlying securities in the portfolio. Yet while use of the term continues to grow, it undersells many of the benefits and the true potential of this exciting area of investing.
But there’s a key word that’s often missing from the direct indexing conversation: custom. After all, why stop at simply mimicking an index’s holdings when investors have the opportunity to do so much more: manage taxes, blend benchmarks, introduce factor tilts, express their ESG views, and so on. These accounts don’t simply offer market exposure; they also add real value in multiple dimensions.
In this insight, Parametric CEO Brian Langstraat argues that custom SMAs offer a good deal more than direct indexing. And the tremendous growth of these types of accounts over the past several years tells us that the era of the custom SMA is here.