Financial companies are rushing to deliver low initial investment direct indexing products to investors, but is DI here to stay? The benefits of custom indexing are obvious: It gives ESG investors an opportunity to punish the greenwashers of their own volition, and optimizers a chance to gain tax alpha easily. However, this isn’t free; investors usually pay much higher fees than traditional ESG funds and the minimum investments are usually high. For the few funds without high initial investments, investors get very little if any flexibility in dropping assets from their portfolio. Now they aren’t an ‘active- wolf’ in sheep's clothing, but those are real drawbacks investors should consider. In the long run, we will see a combination of lower fees with more accessibility as competitors enter the market, and direct indexing could be here to stay.
Finsum: Direct indexing isn’t for everyone…for now, but as fees shrink, and minimums drop more investors should consider adding them to their portfolio.