How Parametric Strives to Stay Ahead in Direct Indexing

Direct indexing has been around for more than 30 years, yet many people still don’t know what it is or how it continues to grow and evolve. We dive into the history, and more importantly the future, of direct indexing and how Parametric pioneered this space.

Building portfolios quantitatively was once a brand-new idea—one that Parametric’s founders made the foundation of a whole company. Parametric has since taken the principles of market efficiency, transparency, attention to taxes and risk and made it into a strategy that’s thrived for more than 30 years: direct indexing. But how did it start, and what’s the future of this established strategy?

How did direct indexing begin?

When Parametric’s founders brought the new idea to the firm where they all worked, the firm didn’t think it fit its brand. It was the inspiration Mark England-Markun, Bill Cornelius and Randy Lert needed to begin something new: an industry leader in custom solutions.

At the time, they were using technology to look at the risk-return attributes of stocks. Then a large family office came to them with a question: Can we have a portfolio that behaves like an index but is thoughtful about taxes? That’s when the first custom portfolio designed around a client-chosen benchmark began. Little did they know that’s how the seed of direct indexing was planted. That family office is still a client today.

What is the future of direct indexing?

Client demand for personalized investment strategies continues to increase, and direct indexing has become one of the fastest growing segments in the managed account space. According to a 2021 Cerulli Associates report, direct indexing is the leading category for manager-traded SMAs, with direct indexing assets expected to top $800 billion by 2026.

We believe that for direct indexing to keep moving forward, scalability and customization must go hand in hand. Like we often say, we make passive investing personal. We focus on adapting our skills to each investor’s challenges and being completely transparent with our methods. We also aim to balance the needs of scale and personalization to make our onboarding and support systems seamless.