Direct indexing is an investment strategy that seeks to provide similar exposure to a benchmark on a pre-tax basis, while seeking to outperform after tax through active tax management. This is accomplished through the direct ownership of individual stocks that are held in a separately managed account (SMA).
Key benefits of direct indexing:
Direct indexing puts the investor at the center of the portfolio allowing advisors to address individual tax needs, reflect personal values and personalize according to investment preferences.
Tax-efficiency
Implement a tax-loss harvesting strategy at the individual security level in an effort to increase after-tax returns.
Personalization
Customize an investor’s portfolio according to their investment preferences and values.
Greater flexibility
Tax-efficiently liquidate concentrated stock, make deposits and withdrawals throughout the lifecycle of the strategy.
Increased adoption of direct indexing:
Until recently, direct indexing has been a tax-efficient solution reserved for ultra-high-net-worth investors. With enhanced automation and lower investment minimums, it has become a fast-growing investment vehicle for advisors and their clients.
Of advisors say direct indexing is a top priority to add to their platform this year1
Of advisors are adopting direct indexing because of the opportunity for greater tax-optimization2
Is direct indexing the right investment strategy for every investor?
Each investor’s situation is different, so its important to consider your clients investing goals before moving forward. A few things to take into account:
1. An investor must have gains to offset losses in order to take advantage of tax-loss harvesting.
2. Although investment minimums have decreased, they can still be considered high for many investors.
3. Depending on the level of customization implemented, higher levels of tracking error may occur, deviating from the chosen benchmark.
Access direct indexing SMAs through Aperio:
For nearly 25 years, we have worked side-by-side with advisors to craft personalized, tax-managed index SMAs that reflect the individuality of each investor.
Thoughtful personalization
Express the individuality of each investor through a wide variety of customization options, including the most granular level of values-aligned investing.
Our experts work alongside advisors to customize portfolios, seeking to understand the client’s priorities and desires.
Engineering excellence
Our proprietary system processes granular sets of individual rules and preferences, encapsulating what we’ve learned over two decades of solving complex investment challeng...
Additional BlackRock SMA solutions:
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