Embracing the collective wisdom of the markets, index (passive) investing has become the preferred method of investing for millions of Americans. Custom Indexing builds on the core tenets of index investing, cost and tax efficiency, by allowing investors to truly customize an index of their choosing. Stonebrook Private clients can express their personal, religious, or other values through this process – a feature not available in off-the-shelf products.

Custom Indexing starts with the selection of a target investment mandate that aligns most closely with your values, goals, and objections. With an objective established, we have the ability to customize the portfolio across a wide array of options including tax transitioning, setting capital gains budgets, applying values-based screens or security restrictions, among a number of other options.

Beyond the construction of a bespoke portfolio, custom indexing offers tangible after-tax benefits to our clients. Owning the underlying constituents of an index allows our team to routinely tax-loss harvest throughout the year. In a recent study⁽¹⁾, Morningstar estimates that deploying tax-loss harvesting within a U.S. stock portfolio from 1999 through 2022 would have added over 1% of additional after-tax return per year compared to a static index tracking portfolio – such as an index ETF or mutual fund.

Once only accessible to large institutions and ultra-high net-worth individuals, vast improvements in technology in recent years have brought this solution to a broader swath of investors. Stonebrook Private is proud to incorporate custom indexing in our investment strategy, for both equity and fixed income mandates.

(1)Straehl, P., & Kunzweiler, A. (2022). Sizing up the Potential Tax Benefits of Direct Indexing [White paper]. Morningstar. https://mp.morningstar.com/en-us/lp/sizing-up-the-tax-benefits-of-direct-indexing