Direct indexing is in its infancy in UK and Euro area, whereas across the pond it has taken off quickly. Driving the growth in the U.S. is the ability for direct and custom indexing to accommodate the US tax system and those benefits just aren’t present in Europe. However, ESG is a well-developed market and direct indexing is turning the heads of many ESG investors for its custom approach. Experts say the institutional knowledge in Europe could make it a haven for direct indexing because larger ETFs take too simple of an approach. Morgan Stanley’s Paramterics sees a natural marriage of these industries because experts can develop more robust indices or individual investors can drop the greenwashers from the indices they are tracking.

Finsum: ESG could vault direct indexing to the investing frontier in the way that tax-loss harvesting has in the U.S.