Frequently asked questions
Common questions about Allspring's direct indexing capabilities
- What is direct indexing?
Direct indexing is an investment strategy that seeks to mimic the risk and return profile of an equity index by directly owning a representative subset of individual index securities within a separately managed account (SMA). Unlike pooled vehicles such as index mutual funds or exchange-traded funds (ETFs), direct indexing—also known as personalized or custom index investing—offers greater customization options, such as the exclusion of individual securities or industries, while also providing tax efficiency and holdings transparency. Read Allspring’s Direct Indexing FAQ.
- Who benefits from direct indexing?
Direct indexing may benefit many investors but may be of particular interest to high‑net‑worth individuals with sizable taxable portfolios—especially those in higher tax brackets, where tax‑loss harvesting can meaningfully improve after‑tax returns. It also helps investors address customization needs such as values preferences and concentrated stock positions. In addition, financial advisors and institutions may benefit by delivering more personalized, tax‑efficient solutions to their clients.
- How are direct indexing strategies implemented through separately managed accounts (SMAs)?
Direct indexing strategies are typically delivered through SMAs where investors directly own the individual securities that make up an index. The SMA structure allows portfolios to closely track a benchmark while enabling customization, tax‑loss harvesting, and risk management at the security level. Technology and portfolio manager oversight support ongoing rebalancing and tax‑aware adjustments, making SMAs an effective vehicle for implementing direct indexing at scale. Download Allspring’s direct indexing brochure.
- What is tax-loss harvesting?
Tax-loss harvesting is a tax-efficient investment strategy that involves selling securities that have declined in value and using those losses to offset capital gains and reduce tax liability. Proceeds from the sale are then reinvested in similar securities to maintain market exposure while avoiding wash-sale rules. Any losses harvested but not used in the current year can be carried forward to offset capital gains in future tax years. Direct indexing provides tax benefits by enabling security‑level tax‑loss harvesting, allowing investors to capture losses throughout the year instead of only at the fund level. Learn more about the tax benefits of direct indexing.
- How does Allspring manage tracking error?
We manage tracking error carefully, seeking to strike the right balance between capturing tax benefits and maintaining close alignment with the index. We believe this approach offers a more holistic and familiar experience for the investor. We use risk models, diversification thresholds, and substitution rules to keep exposures aligned with the target benchmark, and constraints are calibrated to balance customization with tracking control.
- How often does Allspring review direct indexing accounts?
We review accounts daily using our proprietary optimization process. Many providers only review monthly or quarterly, which can miss opportunities during market volatility. Our daily reviews allow for more opportunities to capture tax alpha while balancing savings with benchmark alignment. Download Allspring’s direct indexing brochure for more details.
- How does Allspring support advisors in implementing direct indexing for clients?
We support advisors by providing access to scalable portfolio construction, ongoing tax management, and built‑in customization capabilities. Advisors are supported with institutional‑quality execution, clear implementation frameworks, and transition plans. This approach allows advisors to deliver personalized, tax‑efficient solutions while maintaining operational efficiency and consistency. Contact the Allspring team for the best solution for your clients.