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The Mirage of Direct Indexing

A rare free lunch?

Nicolas Rabener
10 min read
8 Nov 2021

SUMMARY

  • Direct indexing is one of the growth areas in the asset management industry
  • However, direct indexing represents active management, specifically an inferior approach to it
  • Given the poor track record of active management, most investors should avoid pursuing this

INTRODUCTION

Direct indexing is hot. In October 2020, Morgan Stanley bought the asset manager Eaton Vance primarily for its direct indexing subsidiary Parametric. BlackRock followed one month later by purchasing Aperio, the second-largest player in the space. This year, JPMorgan bought OpenInvest in June, Vanguard took over their partner JustInvest in July, and in September, Franklin Templeton acquired O’Shaughnessy Asset Management (OSAM) and its Canvas direct indexing platform.

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