CLS Investments is launching five new direct indexed strategies for advisors who use its sister platform, FTJ FundChoice, a turnkey asset management program.
Three of CLS’s strategies are direct indexed portfolios covering small and large market cap companies and the S&P 500. The other two strategies are focused on high dividend yield and quality value targets. The Omaha, Neb.-based money manager says it will optimize strategies daily using technology from sister company Orion.
Direct indexing offers several advantages for investors over index fund ETFs. One such advantage is tax-loss harvesting, in which an investor can sell a losing asset to offset capital gains while replacing the loss with a comparable asset to maintain an equivalently diverse portfolio.
Orion technology will allow CLS to harvest tax losses based on when a client started using the company’s direct indexed strategies, accounting for individual tax circumstances.
Advisors using CLS’s strategies through FTJ FundChoice will not be able to make their own custom modifications, preventing them from adding or removing assets to account for an investor’s existing holdings or specific investment preferences. An investor who prefers not to invest in a particular industry, for example, won’t be able to remove assets tied to that industry, an option available through other direct indexing opportunities.
“At this time, the strategies will not be able to be modified, beyond the client’s individual tax considerations," CLS portfolio manager Shana Sissel said.
Some industry experts say direct investing could be a $100 billion opportunity, offering the next evolution in index investing after the rise of ETFs.
CLS’s launch will initially be exclusive to FTJ FundChoice users, but the company says it plans to expand its distribution in the future.
