Natixis Direct Indexing Investment Strategy

Natixis Direct Indexing Investment Strategy is a game-changer for investors who want to tap into the power of indexing without the hefty fees. By using a combination of ETFs and direct indexing, Natixis offers a more cost-effective and customizable approach to investing.

This strategy involves creating a customized index fund that mirrors the performance of a specific market index, such as the S&P 500. The result is a portfolio that's tailored to an individual's unique investment goals and risk tolerance.

With Natixis Direct Indexing, investors can enjoy lower costs and higher potential returns. By eliminating the need for a fund manager, investors can save on fees and keep more of their hard-earned money.

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Direct indexing is an equity investing strategy where stocks are purchased to build a portfolio that matches the performance of a pre-selected index, such as the S&P 500 Index.

The goal of direct indexing is to match the performance on a pre-tax basis, but outperform on an after-tax basis. This strategy is mostly used in taxable accounts, but can be used in retirement accounts with customizations.

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Direct indexing strategies can generate better after-tax returns in two main ways. The first is by using tax-loss harvesting, which involves selling a stock when it's down and replacing it with another security to book a loss for tax purposes.

By selling a stock when it's down, investors get to book that loss for tax purposes, which can lead to significant tax savings. This can be especially beneficial for investors who are in a high tax bracket.

The second way direct indexing strategies generate better after-tax returns is by deferring gains to the future. If an investor sells a stock at a short-term capital gain, they will pay tax rates commensurate with their ordinary income.

By waiting just one day for a stock to go from short-term to long-term, depending on the tax bracket, an investor could save up to 20% in taxes. This can add up to significant savings over time.

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Direct indexing starts with an index, often the S&P 500, which is then customized to meet an investor's specific needs.

We can exclude specific securities by name or entire sectors, such as energy, to achieve a diversified portfolio with a desired outcome.

Active screening can be used to include certain companies or sustainable industries through positive screening based on ESG ratings, or to eliminate companies based on ratings, business involvement, or revenue thresholds.

Direct indexing offers several benefits, especially when it comes to tax implications. One of the big benefits is that when you harvest a loss, it's the client's loss that can be used on their tax return.

Unlike mutual funds, direct indexing allows you to use losses to offset other realized gains. In 2022, the S&P 500 Index was down 18.1%, and 100% of large-cap blend funds lost money. However, 83% of those mutual funds paid a capital gain.

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Direct indexing in a separately managed account provides taxpayers with harvested losses they can use to offset other realized gains. This is a crucial distinction from mutual funds, where managers often distribute gains even if the fund has a net-loss position.

If you have a mutual fund with a net-loss position, the manager may still sell stocks that have a gain, generating capital gains for you. This can be frustrating, especially during a down market.

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Direct indexing can be used to create customized portfolios that match the performance of a pre-selected index, such as the S&P 500 Index.

One way to customize a portfolio is to exclude specific securities by name or selected industries within a market sector. For example, you can exclude insurance or banks if you're concerned about certain industries.

Direct indexing can also be used to support Environmental, Social, and Governance investing by actively including certain companies or sustainable industries through positive screening based on ESG ratings.

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Separately managed accounts (SMAs) offer the potential to incorporate customization precisely, tailored to provide just the right fit. An SMA is an investment portfolio owned by an investor and managed by a professional investment firm.

By using direct indexing, you can also eliminate entire sectors, such as energy, which could help an investor concerned about environmental sustainability.

Natixis Investment Managers Solutions has expanded its partnership with Solactive to offer more access to direct indexing separately managed account (SMA) strategies.

The partnership now includes 31 of Solactive's indices, which are being used by Natixis IM Solutions to create customized investment portfolios for clients.

Direct indexing has been gaining popularity, particularly in the US, where investors are looking for tailored portfolios that align with their values and financial goals.

Timo Pfeiffer, CMO of Solactive, notes that direct indexing's ability to allocate assets in a customized fashion makes it an increasingly important solution for many retail investors.

The Solactive Global Benchmark Series includes around two thousand equity indices, covering the global stock market and comprising benchmark indices for 24 developed markets countries and 24 emerging markets.

Natixis IM Solutions is using 11 of Solactive's indices from the Global Benchmark Series and 16 from the Solactive Factor Series in its direct indexing SMA strategies.

Curt Overway, co-head of Natixis Investment Managers Solutions, says that the company's direct indexing business has been growing rapidly due to strong demand in the market for highly customized investment strategies.

The Solactive Factor Series is designed to provide investable access to the most important risk factors, with a straightforward methodology that offers clean exposures to six individual factors: value, quality, momentum, low size, growth, and low volatility.

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Direct indexing can be a great strategy for investors who want to save on costs associated with actively managed funds.

For individuals with a long-term investment horizon, this strategy can be a good fit.

If you're looking to invest in a specific sector or asset class, direct indexing can provide more targeted exposure.

Consider this strategy if you're willing to take on more risk in exchange for potentially higher returns.

Investors with a portfolio of $100,000 or more may find direct indexing to be a cost-effective option.

This approach can be particularly useful for those who want to avoid the minimum investment requirements of traditional index funds.

Sustainable Investing is a key aspect of Natixis Direct Indexing. Our proprietary methodology allows for the application of environmental, social, and governance (ESG) factors to create personalized indexes.

Positive screening favors stocks with positive ESG ratings or that are best in class within their sector. This means that investors can focus on supporting companies that align with their values.

Negative screening excludes specific securities or sectors based on an investor's preferences. By doing so, investors can avoid companies that don't meet their ESG standards.

With Natixis Direct Indexing, investors have the flexibility to create customized indexes that reflect their unique values and goals.