Displaying items by tag: direct indexing

There’s no question that ETFs are a popular way to gain access to the market. They’re low-cost and tax efficient when compared to mutual funds. But, according to a new research paper, ETFs are not the most profitable after taxes are paid. That distinction belongs to large baskets of individual stocks that aren't found in a fund. The paper, which was posted recently by Roni Israelov, the president and chief investment officer of NDVR, and Jason Lu, a research economist in the economic modeling division of the International Monetary Fund, sought to quantify tax-loss harvesting, the strategy of selling losing assets to offset taxable gains that arise when selling winning ones. The paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs. In a recent interview, Israelov said "You make more money harvesting single stocks across an entire portfolio than you do in an ETF." The paper adds to a growing body of wealth management firms that have been promoting the merits of tax-loss harvesting and boosting the case for direct indexing, a strategy in which investors chose a basket of securities that mirror an index, but is personalized to their specifications.

Finsum: A new research paper found that tax-loss harvesting produced the best results when it's used for groups of individual stocks, not ETFs, boosting the case for direct indexing.

Direct indexing was one of the hottest topics in the financial services industry last year. The strategy has typically only been utilized by wealthy clients with complex portfolios, but that’s a mistake, according to Randy Bullard, global head of wealth at Charles River Development. Bullard, who was presenting along with Ben Hammer, a sales executive at Vanguard, at the ETF Exchange conference, pushed back on the notion that direct indexing is a niche product for select clients. He stated, “A direct indexing solution is uniquely designed to catch money in transition, and it’s suitable for all types of investors. That’s the transition the industry is starting to go through. Once you conquer the operational complexities of direct indexing, it becomes a broad market solution.” In fact, Hammer believes that it gives “advisors an additional edge with clients.” Hammer added that the volatility of 2022 provided the perfect environment to showcase the strengths of direct indexing. He stated, “Right now, most of the reason people are using direct indexing is for taxes, but we’re telling people not to fall in love with that after-tax return from last year. Volatility created an opportunity last year, but the opportunity hasn’t passed by. Every year there are some stocks that fall in an index.” Hammer is also seeing increasing adoption among accounting firms that work with advisors.

Finsum:While direct indexing has primarily been a tool for the wealthy, two panelists at the ETF Exchange conference believe that all investors can benefit from it, which gives advisors an edge with clients.

Veriti Management LLC recently announced it is rebranding as First Trust Direct Indexing. The provider of tax-advantaged, direct indexing solutions also announced the appointment of Robert Hughes as Chief Executive Officer, taking the reins from Veriti Co-Founder and Managing Partner James Dilworth. Hughes will focus on integrating Veriti’s direct indexing capabilities and technology with the extensive resources and distribution network provided by its new affiliate, First Trust Portfolios L.P. Veriti was acquired by First Trust Portfolios last July. The deal lets First Trust bring direct indexing to its advisor clients, while potentially exposing Veriti to a larger market. The affiliation between the two companies comes at a time when there is strong demand for more tax-efficient, personalized investment solutions. First Trust Direct Indexing seeks to turn volatility into an asset through tax loss harvesting strategies, which have the potential to increase an investor’s after-tax returns. Hughes had this to say about the rebranding and his appointment, “First Trust Direct Indexing is well positioned to help advisors solve the dual demands of individualized account customization and a smart approach to seeking tax alpha that can tilt client portfolios to their satisfaction. I’m excited to be joining at a pivotal time for our business and the industry.”

Finsum:Following the acquisition of Veriti by First Trust Portfolios last July, the firm is rebranding as First Trust Direct Indexing and appointing Robert Hughes as CEO.

Portfolio management and trading platform Vestmark recently announced that it has launched six separately managed account investment strategies, the firm’s first asset management offering. The strategies, called "Focused Index Portfolios,” follow S&P Dow Jones Indices, but in an SMA wrapper to allow for some customization and tax-loss harvesting. Robert Battista, senior vice president, and managing director of Vestmark Advisory Solutions said that the firm sees the launch as a first step toward a fully personalized direct indexing investment platform which Vestmark expects to roll out later in the year. The portfolios have minimums as low as $100,000, with fees comparable to an ETF. Three of the Index Portfolios are based on custom indices Vestmark built with S&P Dow Jones, including the S&P 500 Focused 100 VAST Portfolio, the S&P 500 Focused 50 VAST Portfolio, and the S&P 500 Catholic Values Focused 100 VAST Portfolio. The other three strategies are based on existing indices such as the Dow Jones U.S. Dividend 100 VAST Portfolio, the S&P 500 ESG Elite VAST Portfolio, and the S&P Developed Markets 100 ADR xUS VAST Portfolio. For now, the new strategies are available in the Vestmark Manager Marketplace, but Vestmark plans to distribute them to broker/dealers, independent advisors, and RIAs via a new sales team dedicated to the company's direct indexing services.

Finsum:Trading platform Vestmark launched six index portfolios as the firm's first step towards a fully personalized direct indexing investment platform which is expected later in the year.

New Age Alpha, which provides equity and fixed-income advisory and sub-advisory services, recently announced the launch of its new direct and custom indexing platform, SPACE. SPACE, which stands for Systematic Personal Asset Customization Engine, is designed to allow the user to build and trade customized alpha or beta index strategies. While SPACE comes with the typical benefits of other direct indexing platforms such as tax optimization, transparency, and ESG screening, it also includes additional features unique to New Age Alpha. For instance, users can build an alpha index strategy by customizing the underlying holdings of an ETF and utilizing factor screens across growth, value, and New Age Alpha's proprietary "Expectation Risk Factor." SPACE offers three primary applications, direct indexing, custom indexing, and prebuilt strategies. The direct indexing application provides the ability to invest directly in the underlying components of well-known indexes and ETFs through an SMA, allowing maximum tax optimization. The custom indexing application provides the ability to build custom, thoughtfully aligned alpha or beta indexes through personalization across various filters, screens, and factors to meet your client's specific needs. The prebuilt strategies offer the ability to invest using any of the over 120 indexes using New Age Alpha’s proprietary Expectation Risk Factor methodology.

Finsum: Asset management firm New Age Alpha launched SPACE, a new direct and custom indexing platform that offers unique features such as the ability to build an alpha index strategy with the firm’s proprietary "Expectation Risk Factor."