Twenty years ago, ETFs held a fraction of the assets they hold today, but the cost-efficient product wrapper would go on to disrupt the investment management industry and see trillions in assets under management. Is direct indexing the next major disruptor? According to management consulting firm Oliver Wyman, customized solutions are expected to grow to $1.5 trillion by 2025 from $350 billion in 2020. That represents a 329% increase. Since investors typically face specific risks that are unique to only them, the demand for customized investing solutions is expected to explode. Where ETFs were able to provide cost and tax benefits over mutual funds, direct indexing can go a step further by not only minimizing capital gains taxes but placing restrictions on holdings using criteria such as ESG. Previously, customization was limited to ultra-high net worth investors, but with companies such as Vanguard and Fidelity offering direct indexing solutions, more and more investors may opt for more customized solutions.
Finsum: With assets under management estimated to jump 329% by 2025, direct indexing is expected to become a major disruptor in the investment management industry.