Case Study: Powering personalization through Direct Indexing

Huge! Independent Advisors, mid-market and retail investors have traditionally been shut out of Direct Index Solutions, which often require a minimum of $250K. We are excited to bring a better Values Aligned Direct Index Solution for everyone, with true, transparent, customized investments — down to the specific companies to include or exclude — for a larger universe of investors, from high net-worth individuals, investors, and advisors, to those just getting started in impact investing.

No, infact, it's easier than working with larger Direct Indexing groups. We make the process seamless and quick.

This is a multi-custodian platform, with three well-known custodians and more coming. First Affirmative receives a soft dollar benefit for accounts using Apex Clearing as Custodian of client assets. First Affirmative has agreements with several custodians with different functionality and costs. Advisors and Clients decide which custodian to use based on services they need and not on any monetary benefit to the firm. For more information please see the ADV Disclosure Brochure available here.

The average tracking error for this solution is 1.7%. THis is considered low for a portfolio of 180 stocks derived from a universe of 4,760 stocks and incorporating nearly 1,500 individual impact preferences. To provide additional color: Tracking error (TE) is one of many financial metrics we use to measure the structural soundness of the portfolio. It measures the hypothetical variability of relative performance for a given period.

For example, Parametric looked at 10-year pretax wealth outcomes at varying levels of TE for an S&P 500^® investment from 2011-2020. The chart below shows the wide range outcomes at a 95% confidence interval for differing TE and shows how persistently high TE can affect investor outcomes over time. For example, $1 invested in the S&P 500^® invested at the end of 2010 would have grown to $3.67 by the end of 2020. But a portfolio with 5% tracking error would be expected to fall within the range $2.69 to $5.00 with 95% confidence.¹


Growth of $1, S&P 500 Index, 2010-2020 for 1%, 2%, and 5% tracking error, 95% confidence intervals

If you’re an advisor, get the ins and outs about First Affirmative’s Values-Aligned Direct Index Solution (VADIS). Learn how you can customize client portfolios, distinguish ESG investments and align strategy with financial goals. Click here to learn more.