Direct indexing is set to shake up the investment industry


Twenty years ago, ETFs held only a fraction of the assets they hold today, but profitable product packaging would continue to disrupt the investment management industry and see trillions in assets under management. Is direct indexing the next major disruptor? According to management consultancy Oliver Wyman, custom solutions are expected to reach $1.5 trillion by 2025, up from $350 billion in 2020. That’s a 329% increase. Since investors typically face specific risks unique to them, the demand for personalized investment solutions is set to skyrocket. Where ETFs may have offered cost and tax advantages over mutual funds, direct indexing can go further not only by minimizing capital gains taxes, but by imposing restrictions on holdings using criteria such as ESG. Previously, customization was limited to very high net worth investors, but with companies such as Vanguard and Fidelity offering direct indexing solutions, more and more investors can opt for more personalized solutions.

Finsum: With assets under management expected to jump 329% by 2025, direct indexing is set to become a major disruptor in the investment management industry.

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