Direct Indexing
Direct indexing is a form of passive investing that enables direct ownership of the individual securities that compose a benchmark. Unlike an ETF or other commingled fund, it gives an investor greater control, allowing for tax-loss harvesting at the security level, customization around ESG preferences, and other advantages.
What makes direct indexing so compelling?
Flexibility
Investors can use direct indexing to escape concentrated positions, optimize charitable giving, and more.
Customization
Clients can choose from equities or fixed income, blending benchmarks to get the precise exposure they seek.
ESG
From screens to proxy voting and more, investors can align a portfolio with their environmental and social values.
CERULLI ASSOCIATES REPORT
The Case for Direct Indexing: Differentiation in a Competitive Marketplace
Researchers at Cerulli Associates got the global investment industry talking in 2021 with a bold prediction: that growth in direct indexing, pioneered by Parametric, would outpace both ETFs and mutual funds. This year they’re back with deeper insights into this new investing frontier, featuring case studies from advisors putting direct indexing to work for their clients. You’ll find out:
Where firms are finding opportunities to scale up and stand out with direct indexing
Why tax management is at the core of direct indexing solutions
How advisory firms use direct indexing to address a wide range of client needs
Learn more from Cerulli Associates in their 2021 report Improving Client Experience: Customizing with Direct Indexing.
Which types of investors benefit most from direct indexing?
Direct indexing offers a number of advantages, but it may not be ideal for all investors. If you’re weighing whether the strategy is right for your clients, consider those with an interest in one or more of the following:
Transitioning assets
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Transitioning assets
Unlike an ETF, you can fund a direct indexing portfolio with cash or existing securities—potentially lessening the tax impact of transition.
Reducing capital gains tax
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Reducing capital gains tax
Unlike an ETF, direct indexing systematically harvests losses at the security level, so your clients can offset gains elsewhere in their holdings.
ESG
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ESG
Direct indexing allows for robust screening, so you can align a client’s passive portfolio with their environmental or social values.
Charitable giving
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Charitable giving
Unlike an ETF, direct indexing allows your clients to gift individual securities to charities or heirs, potentially lessening the tax impact of appreciated holdings.
FIXED INCOME
The investment universe isn’t limited to equities. Neither is direct indexing.
Direct indexing at Parametric:
Custom Core®
Equities or fixed income? One benchmark or a combination of benchmarks? ESG screens, single-stock exclusions, or both? With Parametric Custom Core, your clients get to make passive investing personal, and you get to enhance your value by tailoring a tax-managed portfolio around their precise needs.
An idea that’s 30 years new
Parametric pioneered custom passive portfolios close to 30 years ago. Today we remain the leading provider of direct indexing, and we continue to demonstrate its value to advisors and their clients. Download our direct indexing guide—and get in touch to learn more about how Parametric can help you grow your practice.
More to explore
What Is Direct Indexing?
by Brian Langstraat, Chief Executive Officer
November 15, 2021
If you’re not sure, you’re not alone. Get a quick primer on how this method of investing works, what its advantages are, and which types of investors may see the greatest benefit.
