Direct indexing and assets in tax-managed separately managed accounts (SMAs) have soared to more than $500 billion as of June 30, according to a Morningstar survey of providers. This was a 67 percent increase from the end of 2022, pointing to increasing interest for products that can help investors manage their taxes.
SMAs have a big advantage over tax-managed mutual funds and exchange-traded funds, which are structurally more tax-efficient than mutual funds. In an SMA, the investor owns the underlying securities directly, so the tax management can be customized for the individual — something that’s not possible with a fund.
The survey found direct indexing is the most popular option by far, but firms have turned their focus to other portfolio components, such as active equities and fixed income, to expand the toolkit to minimize capital gains taxes.
In addition, the increased popularity of unified managed accounts, a single account that houses multiple inve