Direct Indexing: Opportunities for Customization and Potential Tax Alpha

Abstract

Direct indexing strategies, delivered through customized separately managed accounts (SMAs) with direct ownership of underlying index constituents, can benefit investors through their flexibility. That direct ownership allows for customizing, both by selecting a specific index and by employing screening to avoid or feature certain exposures. Moreover, for taxable investors, direct indexing may unlock “tax alpha,” generated through proactive, security-level tax-loss harvesting.