Direct Indexing vs. ETFs Friends or Foe?

By Cinthia Murphy

Direct indexing has been getting a lot of attention these days, and the conversation is not really just about the benefits of direct indexing its often about how it will replace ETF investing.

Theres a common narrative about Direct Indexing that centers on ETF industry disruption and displacement. Its often a story about innovation that surpasses what the ETF wrapper offers. How? By allowing investors to own the securities that comprise an index directly rather than owning shares of an ETF tracking that index. The key benefits of this approach include portfolio customization and tax loss harvesting at the individual security level.

This week, if you look at the agenda for the Schwab Impact conference, there are half a dozen panels dedicated to Direct Indexing in just two days. Its as if the case for Direct Indexing isnt just being told, its being told in bold, all-caps font. And Schwab like many billing Direct Indexing as the cool new kid on the block has skin in the ETF game. They are the fifth largest ETF issuer with almost $250 billion in ETF assets.