(ETF) - Charles Schwab Corp. is riding the wave of direct indexing, and ETF popularity, by adding to its Schwab Personalized Indexing a new index that covers international investments.
The recently added piece is the ESAE International Index, which Schwab facilitates with initiatives designed to make direct indexing accessible to more investors.
”Schwab has been very focused on bringing together technology and investment management to a wider audience,” Divya Krishnan, director of Schwab product management, told etf.com.
Schwab’s offerings are in line with the growing popularity of direct indexing among well-off and wealthy investors, an area once only open to the ultra-wealthy.
Assets in direct indexing are expected to grow at a five-year CAGR of 12.3% to reach $825 billion by 2026, according to Cerulli Associates, quoting from a white paper commissioned by Parametric Portfolio Associates. The report, which is geared to financial advisors, estimates direct indexing will account for one-third of retail accounts in three years, led by clients with $2 million to $3 million in assets.
Krishnan added that Schwab’s internal research has shown that “clients want the ability to customize their direct indexing products, which allows them to exclude or include as many stocks as they would like at the industry or sub-industry level.”
The capabilities allow clients to pinpoint favored stocks when crafting their portfolios. As an example, she said a client may choose to omit all stocks in the oil and gas sector, or include the sector, but exclude only the companies engaged in drilling.
The other three indices under this direct indexing program are a U.S. large cap based on the Schwab 1000 Index, a U.S. small cap based on the S&P SmallCap 600 Index and an environmental, social and governance based on the MSCI KLD 400 Social Index. Each strategy seeks indexlike returns with enhanced after-tax benefits.
Krishnan said Schwab offers some of the lowest account-opening minimums and charge some of the lowest fees in the industry. Clients can open a direct indexing account with as little as $100,000, whereas some financial services houses require a $250,000 minimum. Clients pay $400 annually if using a Schwab portfolio manager, and $250 per year using an outside financial profession.
By Michelle Lodge
