Page 15 - Investment Advisor September 2021

This technology makes it possible to For the tax-loss harvesting oppor- BIG PLAYER ACTION
efficiently deploy tax-loss harvesting, tunities alone, portfolio managers can Thus, it should come as no surprise
accommodate a large legacy position deliver a significant “tax alpha” that that the direct indexing movement has
or manage to an ESG mandate without can more than make up their additional not been lost on the industry’s larg-
changing the risk profile of the portfo- fees for actively managing the portfolio. est players. Vanguard, in the very first
lio. For example, portfolio managers can As a result, direct indexing can justify acquisition in the firm’s 46-year history,
pretty much replicate the risk/return premium pricing and be a healthy start recently picked up the direct indexing
profile of the S&P 500 index with rough- to un-commoditizing investing, making innovator Just Invest.
ly 30 to 40 different stocks rather than it the best thing to happen to the invest- “Technology-driven solutions
holding all 500 of them. ment management space since the 12b-1 such as direct indexing continue to
From there, powerful rebalancing fee was gift-wrapped for the industry by reshape our industry, driving better
and trading technology using inno- sympathetic regulators back in 1980. investment outcomes and lowering
vative algorithms can provide alerts Combined with the near fever-pitch costs for clients,” said Tim Buckley,
to tax-loss harvesting opportunities, demand from clients for ESG invest- Vanguard chairman and CEO, in a
or place constraints for ESG reasons ments, direct indexing will be the new statement announcing the deal.
on buying stocks of companies that black for easily creating ESG portfolios, “Wise investments in technology are
are part of an index or model portfo- providing advisors and asset managers an important equalizer, enabling us
lio, as well as for concentrated posi- with a compelling marketing message to democratize valuable investment
tion management to minimize capital to justify premium pricing, and return- capabilities and products.”
gains taxes on holdings that have a ing much-needed profitability to this History has shown that whenever
low cost basis. embattled sector. Vanguard democratizes anything, it has

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SEPTEMBER 2021 INVESTMENT ADVISOR 13