Issue link: https://resources.envestnet.com/i/1527485
direct indexing portfolio could be constructed to capture exposure to, or tilt toward, the Value and Momentum factors. More complicated factor exposures could be crafted, too. Direct indexing can also support sustainability objectives for a portfolio, accommodating religious or social preferences by screening out certain securities or incorporating environmental and/or social filters to overweight companies that align with a client's values. For example, a client who wishes to avoid oil-related stocks or support environmentally friendly businesses can use direct indexing to construct a portfolio that meets these criteria. Direct indexing can also be a useful tool for younger investors and philanthropic foundations with social or religious missions that preclude certain investments. Truly bespoke portfolios can be constructed and managed through direct indexing. For example, imagine that you have a client who is a pharmaceutical executive. Her employer is a company in the Russell 1000 index that regularly rewards her with restricted stock. Because your client now has a concentrated position in her employer's shares, she doesn't want additional exposure through a Russell 1000 index fund or large cap mutual fund. Personalized direct indexing can provide a solution. Envestnet direct indexing, known as Quantitative Portfolios, can help accommodate all those requests. What's equally important is that Envestnet can provide all the personalization listed above while also staying close/adhering to the risk and return objectives of a client's desired portfolio. This helps to ensure we don't sacrifice any investment objective to obtain that personalization. These features of Envestnet's direct indexing can enable advisors to offer unique, value-added services that go beyond pre-packaged investment products while helping to meet key client needs. In a crowded field, this customization can be a critical aspect of differentiation from competitors. Personalized Tax Overlay Actively managed large-cap mutual funds have sacrificed 2.2% of return, on average, annually due to taxes over the past five years, and active small-cap funds lost 2.4% on average over the same period. Taxable fixed income funds aren't immune to tax drag either; they have sacrificed 1.4% in average annual returns over the last five years (for investors in the highest tax bracket). Taxes, then, often drag down realized fund returns in nonqualified accounts even more than expenses. © 2023 Envestnet, Inc. All rights reserved. For one-on-one use for client's Financial Advisor only. 10