Build Around Existing Positions Through Direct Indexing

Direct indexing is a separately managed account designed to replicate the performance of an index. But unlike an index fund, with direct indexing, the investor directly owns the stocks in the account. This leads to a degree of customization not available in mutual funds or ETFs.

Vanguard noted that direct indexing lets advisors build target portfolios around their client’s legacy positions. For example, an investor who works in technology may receive company stock as part of their compensation. A direct indexing account can underweight the portfolio’s exposure to that specific stock. Or it can screen out the entire tech sector entirely.

See more: “More Investors Can Enjoy Direct Indexing’s Tax-Loss Harvesting Capabilities

Vanguard Personalized Indexing lets advisors enter a client’s account details and generate a transition analysis that shows different scenarios. Advisors can assess the potential tax cost of each situation and select the best option for the investor. Additionally, transitioning concentrated positions over time can reduce the tax obligation while letting the portfolio achieve the desired investment exposures.

Vanguard CEO Tim Buckley said at Exchange 2023 that direct indexing was previously only “reserved for the ultra, ultra-high-net-worth” investor. However, recent developments have made direct indexing more accessible to a broader investor base.

Buckley also said that Vanguard will “be investing heavily” in direct indexing. More information about VPI can be found online.

For more news, information, and analysis, visit the Direct Indexing Channel.