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A new form of customised equity portfolio is coming

Given that investment trusts have been around since the 19th century and mutual funds for the best part of 100 years, there’s little wonder that the fund management industry can be viewed as a bit archaic.

Perhaps that’s unfair, as the dawn of passive investing has led to a proliferation of exchange traded funds, but even ETFs have been around since the early 1990s.

However, an interesting development is gathering pace in the US which may force asset managers to move away from these off-the-shelf investment products. Several of the big asset management firms have been buying up companies that specialise in ‘direct indexing’, where investors can buy the stocks of an index directly, while customising to include sustainability preferences or tax efficiencies, instead of purchasing a mutual fund or ETF.

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