Direct Indexing Definition

Learn the definition of direct indexing and other ETF terminology from the glossary.

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Edited by: Staff

Learn more about Direct Indexing

Direct indexing within the realm of ETFs involves replicating the performance of a specific index by owning individual securities directly, rather than through a fund structure. Investors can construct a customized portfolio mirroring the index's holdings, providing greater flexibility for tax optimization, socially responsible investing, or personalized strategies. Unlike traditional ETFs that pool assets, direct indexing allows investors to own the underlying securities directly. This approach offers customization, tax efficiency through tax-loss harvesting, and the ability to exclude specific stocks. While it can be costlier for small portfolios, direct indexing provides tailored solutions aligned with individual preferences and investment goals.

Related Terms

Tax Efficiency, Custom Basket

ETF Glossary is’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.