Direct indexing is a separately managed account designed to replicate the performance of a chosen benchmark index. But unlike index funds, investors directly own each stock in a direct indexing account.
Also unlike index funds, it lets investors include or exclude specific stocks from an index. In fact, entire sectors can be excluded. With the advisor’s guidance, investors can align their portfolios with their values, sustainability objectives, or individual investment strategies.
In addition to providing tax-loss harvesting opportunities, direct indexing services like Vanguard Personalized Indexing let advisors build customized portfolios to accommodate their client’s individual investment goals. As Morningstar’s Karen Wallace wrote: “When you own the stocks directly, you are ultimately the portfolio manager.”
VPI offers a range of screens and tilts to allow investors to customize their portfolios. Advisors can also request custom options on their client’s behalf. Once investors select their options, advisors can generate impact and performance reports on demand. That way, their clients can have a clearer picture of the impact of their customizations.
See more: “Harvest Tax Losses With Ease Through Direct Indexing”
For Morally Conscious, Type A Clients
David Murdock, a managing partner at Bordeaux Wealth Advisors, is an advisory client of Vanguard. Murdock told Vanguard that the financial advisor had a “morally conscious” and “type A” client. Murdock used VPI’s online portal to screen “around religious areas and other items” that suited the client’s needs.
“And so, we were able to factor in a few things for him here and there,” Murdock said.
In addition, the client also worked for a large, publicly traded biotech firm. With VPI’s service, Murdock was “able to exclude that stock from his portfolio.”
Vanguard CEO Tim Buckley said at Exchange 2023 that the company will “be investing heavily” in direct indexing. More information about Vanguard Personalized Indexing can be found online.
For more news, information, and analysis, visit the Direct Indexing Channel.