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birb_cromble  1d ago (text post)   447 thread views

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Without looking at the trades themselves, my immediate guess is direct indexing. Any hedge fund trade would be 'hidden' in that hedge funds manage the trades themselves and their investors invest capital into the hedgie, and in return receive a portion of the growth/dividends, so hedge trades wouldn't be listed as part of Trump's personal trades.

Other ideas - options spreads to help liquidate large non-qualified capital gains positions.

I kind of hate direct indexing. It’s the kind of wealth management product that is very smart when it’s bespoke but I think has a lot of risks when commoditized when scaled. When JPM or whoever has a few hundred billion doing it by algorithm it feels like something Jane St could like reverse engineer the JPM algorithm and front run it. Which would cause a very real slippage issue. Indexing itself has this issue. Hedge funds do game out index inclusion/exclusion and bid up or sell off before those dates.

For direct indexing the private banker would sell you: Tax Alpha - added fee - portfolio complexity = profit. The real equation is probably Tax Alpha - added fee - portfolio complexity - added slippage

Added slippage increases as AUM of DI increases.

Indexing itself has developed a slippage costs of inclusion/exclusion that has increased last 5-10 years. Though I think pure indexing is mostly good because SPY diversification means less trading and regular taxation events and generally low fees.

I haven't gone to into the weeds of the trading process involved in direct indexing, but assuming the trading team who is managing the indexing portfolio is awake, direct indexing should have less of a slippage issue as it is directly buying assets in real time to S&P holding movements compared to etfs which frequently use option contracts to match the pricing of their targeted index. Since options have a set expiration date, it's much easier to front run expiring contracts compared to actively trading 500 individual stocks. Vanguards promotional material indicate that harvesting and rebalancing is daily, so I'm not sure how much this is possible to be front run the active management from general market noise.

The main 'slippage' effect that direct indexing has is from avoiding wash sales instead of being front run by another trader.

Considering all direct indexing funds require a fee-based advisory management and the lowest initial investment I see from any company is around 200k initial investment,

The options are only used for leveraged ETFs which you are correct have very high slippage. I would guess far higher than DI. But DI trades more than an etf like SPY. The main index ETFs just hold the individual stocks and only trade with index inclusions/exclusions. DI trades any time the portfolio has losses so more trading.

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