Harness the Power of Direct Indexing with S&P DJI

Direct indexing involves tracking a particular benchmark by owning the stocks in the index directly rather than using passive vehicles such as ETFs or index funds. This approach facilitates customization, tax-loss harvesting and other benefits. 

Direct indexing ended 2023 with assets of $615.3 billion, and the market is projected to nearly double to $1.1T trillion by the end of 2028. Direct indexing is expected to grow at a five-year compound annual growth rate (CAGR) of 12.3% through 2028E, which is expected to exceed the growth of ETFs, mutual funds and separately managed accounts (SMAs) over the same period.

The growing popularity of direct indexing reflects its benefits such as facilitating customization and creating opportunities for tax-loss harvesting. The growth has also been fueled by advances in trading technology and lower trading costs that have made direct indexing easier to implement.

Unlike index funds and ETFs, direct ownership of the stocks in the benchmarks enables tax-loss harvesting strategies in individual positions that have declined in price. Therefore, direct indexing may create opportunities for investors to potentially minimize their taxes, even if the index is rising. Learn more about the historical data about tax-loss harvesting opportunities in bull markets by exploring the infographic below.

Some other benefits of direct indexing include portfolio transparency and customization based on a particular investor’s desired exposures. For example, investors with a large existing position in an individual stock can underweight or exclude that stock when replicating a benchmark in direct indexing. In addition, investors can align their portfolios with their values or views on sustainability by excluding or underweighting specific stocks or sectors.