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Direct Indexing- What is It? Why it matters?

Direct Indexing- What is It? Why it matters?

April 06, 2022

We recently came across this Morningstar article that bears sharing.  It addresses a growing trend in the Active/Passive developments in Asset Management.  In an effort to inform, this article does a fairly good job of explaining what direct indexing is and why it matters.  As always, an Investor should seek Professional Advice and then make their own decisions. 

It seems to me at present, the 2 advantages Direct Indexing have over Passive investing in an S&P 500, Russell 1000, et al. fund are:

1- Potential tax benefits of not selling a position over an index that targets a time period from X to Y

2- Receiving the dividend income payments from the actual, underlying stocks held within the Direct Indexed fund. 

(#2 has long been a beef of mine for those who are proponents of Passive investing in Indices.  Without the dividend income, Investors are usually missing out on the total return of that index.  This is important and beneficial to overall return during good and bad market cycles.)

Morningstar Article-Direct Indexing