Investment platform Fundment has launched custom indexing in what it claims is a first for UK investors.
The arrangement allows investors to directly hold the individual stocks within an index and to personalise their holdings to match their preferences.
Custom indexing offers retail investors the control, flexibility and lower costs more typically afforded to institutional investors via segregated mandates.
According to Fundment it broadens advisers’ ability to offer investment solutions more closely aligned with the needs and preferences of clients.
Examples include client views on environmental, social and governance (ESG), sustainability, or where they have a specific income requirement.
Fundment said using custom indexing on its platform is simple: select a base index, screen by sector, then by individual securities, and finally assign to a client or model.
Index funds emerged in the 1970s after Vanguard Group founder, Jack Bogle, sought to make investing more accessible and affordable to everyday investors.
He realised they could benefit from the performance of an entire index through one simple, low-cost product. Exchange-traded funds (ETFs), which built on the concept, followed in the 1990s.
Custom indexing represents a further evolution.
It allows investors to customise the index, keeping the stocks they wish to hold and removing those they do not.
They still benefit from lower costs compared to active investment management.
Fundment chief executive Ola Abdul said: “Custom indexing is the next step in the evolution of index investing – a technology that removes barriers as technology often does.
“Traditional mutual funds and ETFs act as intermediaries between investors and their underlying stocks and have historically served investors well.
“However, with advancing technology, lower transaction costs, and fractional share trading, more investors may choose to own their shares directly in the future, bypassing mutual funds and ETFs. It is now possible for investors to go beyond merely replicating an index and achieve much more.”
He added: “With custom indexing, investors can directly own the individual stocks within an index as part of an index-linked account, while personalising holdings for specific outcomes and preferences.
“For advisers, it has the potential to support deeper personalisation of the financial planning proposition and helps them provide more value beyond the inclusion of standard mutual funds in client portfolios.
“Custom indexing can be integrated seamlessly with the standard process of building financial plans, determining appropriate asset allocations, reporting on performance, and addressing the estate-planning needs and charitable-giving preferences of clients.”
