Direct indexing is being viewed as the next frontier for wealth managers when it comes to portfolio customisation, according to MSCI.
The firm’s latest 2026 MSCI Wealth Trends report questioned 250 wealth management professionals globally, including Asia Pacific, and found 62 per cent expect usage of direct indexing to increase in the next three years.
A further 59 per cent said they view direct indexing as ‘essential’ to their high net worth portfolios.
Direct indexing involves purchasing individual stocks within an index to mimic its performance rather than using an index fund or tracker. This allows for greater control and customisation and can offer tax advantages for the investor.
The report stated: “As investors demand more control, transparency and alignment with their personal values, direct indexing is emerging as the connective tissue between customised portfolios and scalable performance.
“This year’s survey shows momentum in this space, with advisers increasingly viewing direct indexing as essential for serving HNW clients seeking customisation beyond what pooled vehicles can offer.
“Once the domain of ultra-HNW clients, the strategy is expanding into the mainstream, enabling advisers to customise portfolios for individual clients while maintaining benchmark-like efficiency.”
The need for personalisation was a further trend flagged by MSCI in the report with advisers reporting that almost every one of their portfolios incorporate personalisation as investors reconsider the structure and purpose of the holdings.
“Advisers must tailor portfolios across multiple dimensions while still managing risk, liquidity, tax considerations and operational efficiency. This pressure is compounded by the expansion of private markets and ETFs as building blocks for personalisation, and by fast-evolving client expectations for transparency and relevance.”
Last year, its Emerging Trends in Wealth Management report found wealth managers are more readily offering bespoke portfolios to a larger client base, thanks to technology advancements which have transformed personalisation from a luxury into an industry standard. Some 60 per cent of wealth managers said they expected the majority of their HNW client portfolios will require some degree of personalisation now or in the near future, with tax optimisation and investment preferences identified as the top reasons.
The challenge for 2026, MSCI said, around personalisation is that how can wealth managers scale this personalisation within their firms without compromising on quality or speed.
While direct indexing is seen as one way to achieve, uptake is likely to be only gradual due to numerous hurdles and operational challenges with wealth managers citing costs, customisation and balancing issues and tax management as key concerns.
Another factor was investor education and convincing clients of the strategy’s benefit, particularly during a bull market when the tax benefits are less clear.
It also noted that, simultaneously with increased direct indexing, they are investing heavily with ETFs for liquidity purposes as well as for providing thematic exposures. ETFs also serve as an efficient way to express tactical views and manage cashflow during periods of market volatility with lower fees.
