Industry Updates

Vanguard going all in on direct indexing, CEO Buckley says

Investing style seen as disruptive to ETF industry

Ron Day


Vanguard, the second-largest ETF issuer, is planning a major push into direct indexing, an investing style that competes head-on with its range of ETFs and mutual funds.

The ETF issuer, also the world’s biggest mutual fund company, will “invest heavily” in direct investing, CEO Tim Buckley said while being interviewed on stage at the Exchange ETF conference in Miami Beach this week.

Direct indexing has been called the “ETF killer” because it permits clients to create replicas of stock indexes and build customisable portfolios, undercutting some of the value of ETFs.

Its big appeal may be advantages that cut tax bills. Investors can engage in tax-loss harvesting, wherein losses from investments can be used to offset gains in other areas.

“There are huge tax benefits for a lot of investors in using direct indexing,” Buckley said, according to Pensions & Investments.

Vanguard, which manages $2trn assets in81 US-listed ETFs, started its move into direct indexing in October 2021, with the purchase of Just Invest and its direct investing platform called Kaleidoscope.

Direct indexing has been available to wealthy investors for years. It may grow to represent one-third of retail separate accounts by 2026, driven by clients with $2-3m assets, according to a report from Cerulli Associates last year.

With so many of its ETFs and mutual funds tied to indices, Vanguard, with $7.2trn assets under management (AUM), may not seem like an obvious company to embrace direct indexing. Buckley said that rather than taking a hostile approach, Vanguard sees it potentially benefiting investors broadly.

The move suggests direct indexing is here to stay and will make greater inroads in the ETF industry. In certain circumstances, investors may find it a better investment solution than even ETFs.  

“It is not about disruption or competition,” Sumit Roy, senior analyst at, said. “It is about offering investors more choice and the best solution for their investment needs.”

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