Nucleus Wealth launches Australian Direct Indexing option

Nucleus Wealth launches Australian Direct Indexing option

Recently described by CNBC as “the hot new investing strategy”, Vanguard, Blackrock and Morgan Stanley have all recently acquired direct indexing companies to bolster their investment offerings to clients. Nucleus Wealth announce – Australia’s first direct indexing service. It is available to investors in a broad range of structures, including superannuation.

Damien Klassen, Chief Investment Officer at Nucleus Wealth, says, “Direct indexing is the next generation of Exchange Traded Funds – ETFs 2.0. Direct indexing involves the investor owning the individual shares that make up an index in a separately managed account. Because the investor directly owns each of the shares in their own account, Nucleus Wealth is able to customise their superannuation or investments.”

This means investors have the ability to add or subtract stocks to reflect their personal values, for example, you can exclude sectors where you already have exposure, like say Australian banks, or where it opposes your values, like gambling or fossil fuel production.

The power is in the hands of the investor, without the research and oversight responsibilities that direct share ownership often entails. Particularly for superannuation investors, it provides custom investment options without needing to commit to the time, expense and legal obligations of running an SMSF.

Damien adds, “Where an index mutual fund, an index ETF or traditional superannuation fund merely tracks the index, direct investing allows investors to control their investment decisions. Investors can modify their portfolios by creating ‘tilts’ which is the ability to remove or add certain holdings or sectors according to personal preferences”.

Direct indexing is an important evolution that embraces the current trend of ethical investing, recognising there isn’t a one-size-fits-all solution. The current trend of adding more and more mutual, unitised and exchange-traded funds is clumsy at best, and prohibitive at worst.

“When it comes to ethical investing, the questions become more nuanced and the answers often depend on the individual,” Klassen added.

Direct investing is, in many ways, an evolutionary jump for investors. To draw an analogy from automotive production, managed funds, traditional superannuation and ETFs are similar to the Henry Ford quote: ‘Any customer can have a car painted any colour that he wants, so long as it is black’. Before direct investing, if you want a red car, you had to go to a stock broker and build the entire car from the base parts. Nucleus looks at direct investing as providing a third option: take an already built car and add your own custom tilts.

Investment fees start from 0.11%, administration fees are on a sliding scale based on the amount invested. Indicatively, an investor with $100,000 in a balanced fund would pay around 0.5% in total fees (depending on the mix between funds).