Remi Direct Indexing Case Study: Dividend Income
Clients looking for a better dividend income solution? Learn how direct indexing may be the answer.
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5/12/2026
7 min read
Topic
Direct Indexing
Key takeaways
- Moving from an active dividend strategy to a tax-managed direct indexing SMA may significantly reduce realized taxes.
- Direct indexing can allow for customized dividend exposure, broader diversification, and lower fees compared to traditional active dividend strategies.
- In kind transfers and phased transitions may help balance tax savings, tracking error, and alignment with client goals.
Executive Summary
Transitioning an Active Dividend‑Focused Strategy to Direct Indexing
The case study illustrates an investor holding an actively managed, dividend‑focused separately managed account (SMA) that offered limited diversification, higher costs, and no embedded tax management. A direct indexing SMA transition was evaluated as one potential approach to better align the portfolio with stated objectives such as improving tax efficiency, increasing diversification, and adding personalization while maintaining dividend exposure.
Tax‑Managed Dividend Tilt Direct Indexing Portfolio Design
A tax‑managed dividend tilt portfolio was constructed using a personalized individual stock indexing approach, incorporating eligible legacy positions transferred in‑kind. This custom indexing solution was designed to seek enhanced dividend yield while managing tracking error relative to a representative benchmark and accommodating portfolio‑level customization preferences.
Systematic Transition Planning and Tax Efficiency Considerations
The transition analysis considered multiple implementation approaches, including options that emphasized minimizing tax liability, managing tracking error, or balancing both objectives. By evaluating alternatives to full liquidation and incorporating systematic tax‑loss harvesting strategies, the approach demonstrates how disciplined transition planning may help support more tax‑efficient portfolio management and the potential for improved after‑tax outcomes over time.
Frequently Asked Questions (FAQs)
- What is direct indexing?
Direct indexing is an investment strategy where an investor directly owns the individual stocks that make up an index, rather than purchasing a mutual fund or exchange-traded fund (ETF) that tracks the index. This approach allows financial advisors to deliver personalized investment portfolios, offering greater control over tax management, and security exposures.
- What is a dividend tilt strategy?
A dividend yield tilt direct indexing strategy is a method of customizing a portfolio to capture an above-average dividend yield relative to the baseline benchmark. While tracking the core characteristics of an index (such as the S&P 500), the portfolio construction engine overweights securities that offer higher dividend payouts. This allows clients seeking income generation to receive a personalized, tax-managed equity portfolio that can target cash-flow objectives without sacrificing broad market diversification.
- What are the tax benefits of direct indexing?
Direct indexing provides significant capital gains tax mitigation strategies. Because the investor owns the individual securities, they can utilize systematic tax-loss harvesting—selling specific underperforming stocks to offset gains realized elsewhere in the portfolio. Furthermore, transitioning to a direct indexing platform via in-kind transfers can help mitigate the tax liabilities typically associated with fully liquidating a legacy portfolio.
- How does systematic tax-loss harvesting work?
Systematic tax-loss harvesting is a continuous, year-round portfolio management technique. It involves monitoring individual stock positions and strategically selling assets that have declined in value. The realized capital losses are then used to offset taxable capital gains, thereby helping to generate "tax alpha" for the client.
- How to transition an active SMA to direct indexing?
Transitioning an active separately managed account (SMA) to a direct indexing strategy typically begins with a comprehensive review of the current portfolio's holdings and cost basis. Legacy positions with embedded unrealized gains can be transferred in-kind to the new account. Allspring's Remi can help build the new direct indexing portfolio around these legacy assets, while balancing desired level of tracking error and tax management.
Related insights
Explore the ins and outs of direct indexing, why it matters, and how it can be used to create personalized, tax-smart investment strategies.
All investing involves risks, including the possible loss of principal. There can be no assurance that any investment strategy will be successful. Investments fluctuate with changes in market and economic conditions and in different environments due to numerous factors, some of which may be unpredictable. Each asset class has its own risk and return characteristics.
This material is provided for informational purposes only and is intended for investment professional and/or institutional investors use only. Not for retail public use.
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