Advisors intend to increase their usage of direct indexing
The aggressive growth of passive investment has been an inescapable trend for managers in the investment industry. The relentless pressure on fees drives down costs while potentially concentrating assets among the top players who can best use their scale to further reduce costs. Direct indexing, in which investors directly hold the securities that make up an index rather than invest in shares of a fund, has served as one way for investment managers to participate in the growing demand for passive investing while offering additional customization opportunities for clients.
ISS Market Intelligence explored advisor sentiment around direct indexing, in addition to trends around vehicle preferences and portfolio construction, in the September edition of its ISS MI Advisor Pulse Series, which surveyed 806 advisors in July 2024. ISS MI’s surveys found significant future interest in the approach. When advisors were asked whether they intended to increase or decrease usage of specific vehicles over the next twelve months, direct indexing had the second highest net future increase of any vehicle at 38%, behind only active ETFs (53%).
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