- Exchange-traded funds (ETFs) offer lower expenses and greater tax efficiency than traditional open-end mutual funds.
- Direct indexing allegedly does ETFs one better, giving investors the opportunity to create a customized index fund.
- Most of direct indexing's alleged advantages can be duplicated by ETFs at lower cost.
- Over time, an investor who sells their losers from their direct-index portfolio will be left with a portfolio of mostly unrealized gains.
- There are situations in which direct indexing and ETFs can complement each other.
‘Direct Indexing’ vs. ETFs: How They Match Up
Here’s the case for why exchange-traded funds, now 30 years old, have as many advantages as their ballyhooed direct-indexing rival, but at lower cost
Mark Hulbert
