For better or worse, it’s a term the investment industry seems to have embraced. At its simplest, direct indexing refers to a form of passive investing in which one gains direct ownership of the individual securities that compose a given benchmark. By owning the underlying names in that benchmark, an investor gains greater control over a passive allocation, allowing for tax-loss harvesting at the security level, among other advantages. This stands in contrast to an index fund or ETF, which can offer the same exposure but not the same control or the same advantages.
However, we feel direct indexing misses the mark. It fails to articulate what’s truly valuable to many high-net-worth investors and their advisors when it comes to investing: being able not only to control passive mandates but also—crucially—to customize them. Parametric pioneered customized passive portfolios close to 30 years ago, and we continue to demonstrate their value to our clients today. Below you’ll find some of our recent thinking on the topic.
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