The rise of personalised stock indices

IN 2001 ANDREW LOSPETF, a professor at the Massachusetts Institute of Technology, predicted that technological advances would one day allow investors to create their own personal indices designed to meet their financial aims, risk preferences and tax considerations. Such an idea “may well be science fiction today”, Mr Lo wrote, but “it is only a matter of time.” More than 20 years later, that time may have come.A revolution in passive investing that began in the 1970s led to the introduction of funds that track the performance of an index, such as the & 500, affording investors diversification at a low cost. Now a growing number of American fund managers and brokers are offering retail clients more personalised products that combine the benefits of passive investing with greater customisation. Direct-indexed accounts, as such products are known, promise to track the performance of a benchmark index. But unlike off-the-shelf mutual funds or exchange-traded funds (s), which are pooled investment vehicles overseen by portfolio managers, investors in direct-indexed accounts own the underlying securities, and can tailor their portfolios to suit their needs.