Direct Indexing & Tax Alpha for Ultra-High-Net-Worth Investors

Direct indexing involves owning individual securities that replicate an index — rather than an ETF or mutual fund holding that index — within a separately managed account. This structure enables security-level tax-loss harvesting, custom factor tilts, and socially responsible screens that are not possible within a pooled fund vehicle.

The potential tax benefits from systematic tax-loss harvesting at the individual security level are most meaningful in large taxable accounts with material capital gains exposure. This article examines how direct indexing works, how tax-loss harvesting creates potential value relative to ETF-based approaches, and the portfolio size and tax situation that makes it worth evaluating.

For informational purposes only. Tax-loss harvesting does not guarantee a profit or protect against losses. Individual tax circumstances vary. Consult a qualified tax adviser.