Investors are increasingly seeking to customize their investments to their specific mandates.
“Data, Custom Indexing Reshape Public Equity Portfolios. Investors are increasingly seeking to customize their investments to their specific mandates”—We were quoted regarding this by Matthew Toledo for Chief Investment Officer media.
QUOTED EXCERPTS
Direct indexing has been around for more than a decade, but the market did not begin to significantly grow until 2018. Between 2018 and 2021, direct indexing assets under management rose to $350 billion from $100 billion, according to the CFA Institute.
“Trading data is now the Lego set of equity markets,” says Michael Ashley Schulman, CIO of and founding partner in multi-family office Running Point Capital Advisors. “Snap enough bricks together, and you can build any sector tilt, factor fiesta or thematic maze you like.”
Schulman says custom indexes can help clients avoid being overexposed to any specific stock.
“Imagine a $20 million client that already owns $7 million ofMicrosoftt. When would I ever buy them any more?” Schulman says. “If I put them into a Nasdaq or SPY ETF like QQQM or VOO, 8.8% or 7%, respectively, is automatically going [into Microsoft]. Custom indexing can avoid that scenario.”
Trading data is now the Lego set of equity markets. Snap enough bricks together, and you can build any sector tilt, factor fiesta or thematic maze you like.
ADDITIONAL THOUGHTS
Models have always been built on data under the premise of GIGO (garbage in, garbage out). So as the data improves so should the model, but the number of variables and factors that one can throw in has also increased exponentially, making models more complex and nuanced then ever. Additionally, the captured alphas can seem to have shorter life spans as competition from tens of thousands of PhDs, MBAs, engineers, and super arrays increases.
For RIAs and wealth managers, the game-changer (and existential threat) is that portfolio construction morphs from pre-packed mutual-fund and ETF TV dinners into bespoke DoorDash orders; miss the personalization wave and you’re Blockbuster in a Netflix world.
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