Morningstar Launches Direct Indexing

Morningstar Launches Direct Indexing

Morningstar, Inc., a leading provider of independent investment research, announced that Morningstar Wealth launched Direct Indexing, an investment offering that draws from industry-leading research, technology, and insights across the Morningstar organization to help deliver greater personalization, automation, and tax efficiency for advisors and their investors. Morningstar Direct Indexing is unique in uniting extensive in-house capabilities—Morningstar’s Investment Management, Morningstar Indexes, Morningstar Sustainalytics, and Morningstar Equity Research—to create and manage personalized investment strategies at scale. Direct Indexing portfolios will be made available through the Morningstar Wealth Platform to start.

“Advisors are looking for ways to meet client interest in new investment options, particularly those that allow customization and personalization. Morningstar Direct Indexing leverages the strengths of Morningstar to allow advisors the ability to engage in new and collaborative ways with their clients. Together they can intuitively and effectively tailor portfolios in several different ways and have transparency into the impact of those choices,” said Daniel Needham, president, Morningstar Wealth. “This is the latest way Morningstar is innovating, guided by our mission to empower investor success.”

Direct indexing allows advisors to build a portfolio that tracks a broad index efficiently while typically buying all, or a subset, of the index holdings. This approach makes direct ownership of underlying securities practical for more individuals, allowing them to personalize their holdings based on preferences and select additional services like tax-loss harvesting, tax-lot consideration, and holding period management.

The launch comes amid accelerating interest in direct indexing. Approximately 61 percent of advisors indicate they are using or considering direct indexing.1 Other research suggests direct indexing will grow 12.4 percent annually from 2021 to 20262, exceeding the 11.3 percent annual growth projected for exchange-traded funds (ETFs)2.

“For almost a year we have been engaging with a council of advisors who have helped us shape Morningstar Direct Indexing. Their practical insight and experience with clients guided our road map and development. In June, we launched a pilot program that put our Morningstar Direct Indexing into practice. Interest in the pilot program reached more than three times our initial targets,” said Cindy Galiano, head of product, Investment Management, Morningstar Wealth. We are excited to now make this available to the market.”

Direct Indexing is one of the first major product launches from Morningstar Wealth, a new group that combines managed portfolios from Morningstar’s Investment Management group, portfolio management software Morningstar Officesm, investment data aggregator ByAllAccounts®, and the individual investor experience across Morningstar.com®. Morningstar Wealth plans to introduce extra functionality and capabilities to advisors and enterprise firms over the coming year.

Source: Morningstar

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