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Vestmark Launches Index-Based SMA Strategies, Pointing Way to Direct Indexing Rollout

Vestmark’s launch of six Focused Index Portfolios this week represents the tech provider’s first foray into asset management. The firm’s fully personalized direct index platform is still in the works.

Portfolio management and trading platform Vestmark has launched six separately managed account investment strategies, a move that represents the technology firm’s first foray into asset management.

Called "Focused Index Portfolios," the strategies hew to S&P Dow Jones indexes, but in the SMA wrapper to allow for some level of customization and tax-loss harvesting. The firm sees the launch as a first step toward a fully personalizable direct indexing investment platform, which Vestmark expects to roll out later this year, said Robert Battista, senior vice president and managing director of Vestmark Advisory Solutions.

Three of the new Focused Index Portfolios are based on custom indexes Vestmark built with S&P Dow Jones: The S&P 500 Focused 100 VAST Portfolio and the S&P 500 Focused 50 VAST Portfolio, both of which seek to invest in a subset of constituents from the S&P 500; and the S&P 500 Catholic Values Focused 100 VAST Portfolio, which invests in a subset of the S&P 500 Catholic Values Index, which excludes companies involved in activities perceived to be inconsistent with Catholic values.

The other three strategies are based on existing indexes: The Dow Jones U.S. Dividend 100 VAST Portfolio for dividend-paying stocks; the S&P 500 ESG Elite VAST Portfolio, which filters the broader index for high-ranking ESG stocks; and the S&P Developed Markets 100 ADR xUS VAST Portfolio, for international equities.

“This Focused Portfolio offering is designed more like a traditional SMA, so it does have tax loss harvesting and customization capabilities through restrictions,” Battista said. “But it’s more largely designed to access certain exposures at a relatively low minimum and relatively low price point. 

The portfolios have investment minimums as low as $100,000, and while Battista declined to provide specific pricing, he said the fees are comparable to an ETF.

It's a step toward direct indexing, but a small one. “This is just a thematic index that you deliver in an SMA,” said Neil Bathon, founder and partner at FUSE Research. “I get why they want to say that they have this (direct indexing), but I think it’s really a stretch to put it into that category. It kind of feels like a convenient spin on something to take advantage of the concept, because there’s so much buzz around it.”

In September 2021, Vestmark said it would be investing more heavily into its direct indexing capabilities, and that it would be building out technology to support fractional share trading.  

“Fractional share does continue to remain on the roadmap,” Battista said. “This offering will not offer that. Part of the challenge is that we offer our solutions through intermediaries, and the vast majority of the intermediaries we work with still can’t support fractionals.”

Although the Focused Portfolios do allow advisors to do some tweaking, such as implementing security-level restrictions, Vestmark's upcoming rollout is meant to give advisors the ability to fully customize an index around an individual client's values and specific tax situations. That platform will also be built on a unified managed account framework, with active manager SMA sleeves, mutual funds and ETFs in the same account.

For now, the new strategies are available in the Vestmark Manager Marketplace, but the firm plans to distribute them broadly to broker/dealers, independents and RIAs via a new sales team dedicated to the company's direct indexing services.

Battista said Vestmark has done a lot in terms of discretionary trading and overlay management of third-party strategies on the manager marketplace, but this is the first time it has offered asset management strategies of its own.

“We’re a technology provider, first and foremost, and this is a natural adjacency to our core strengths, offering this type of personalization at scale.”

TAGS: Technology
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