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Portfolio construction

Generate better after-tax returns with direct indexing

August 19, 2021 - 3 min read

Kevin Maeda, Chief Investment Officer, Direct Indexing, Natixis Investment Managers Solutions, explains the tax differences between index funds, ETFs, and separately managed accounts.

  • While index mutual funds and ETFs are reasonably tax-efficient, investors must still pay taxes on their dividends and periodic capital gain distributions.
  • For tax-sensitive investors, there’s another way to index, using a separately managed account, also known as an SMA.
  • With a direct indexing SMA, investors have the potential for higher returns after taxes, because they own the stocks directly.
  • This means any losses in the portfolio can be used to offset taxable gains, so investors can keep more of their investment earnings after taxes.

Separately managed accounts (SMAs) are investment portfolios owned by an investor and managed by a professional investment firm.

The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Actual results may vary.