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Customizing your direct index

Overview

You can customize your direct index at setup, or any time after you're invested. On Frec, you can:

  • Add, remove, or adjust the weight of up to 25 stocks
  • Remove or adjust the weight of up to 5 sectors (not available for the S&P 500® Information Technology Index or MVIS® US Listed Semiconductor 25 Index, since each is made up of a single sector. Learn more about sectors)

Adding a stock

During setup

  1. On the "Customize your index" screen, search for the stock you want to add.
  2. If it doesn't appear, it's likely not available to trade within direct indexing. Contact us if you think this is a mistake.

After you're invested

  1. Open your direct index, then select Edit next to "Your direct index."
  2. Select Edit next to "Your customizations."
  3. Search for the stock. If it doesn't populate, it's not currently tradable in direct indexing.

What happens: The new stock is assigned a weight based on its market cap relative to the rest of your index, and every other position's weight shrinks proportionally to make room.

Example: You hold 5 equally-weighted stocks at 20% each. You add a 6th stock of the same market cap. The new stock gets 16.67%, and the other 5 each drop from 20% to 16.67%.

Excluding a stock

During setup

While investing in your "Customize your index" screen, click the customize icon next to any stock to exclude it.

After you're invested

  1. Select Edit next to "Your direct index," then Edit next to "Your customizations."
  2. Go to "Customize stocks" (it comes after "Customize sectors").
  3. Select the customize icon to exclude the stock.
  4. Review the estimated tax impact, an estimate of what you may owe if the position is sold as a result, before confirming. (More on how we calculate this.)

What happens: The excluded stock drops to 0% weight. That stock is sold out of the position over time and its weight is redistributed to the rest of your index in proportion to market cap.

Example: 5 stocks at 20% each. Exclude one, and the remaining 4 move to 25% each.

Good to know: Excluding a stock isn’t the same as trade restricting it. Excluding sets its weight to 0%. A trade restriction blocks a stock from being traded at all, but doesn't necessarily zero out its weight. Learn more about trade restrictions.

Adjusting the weight of a stock

  1. Select Edit next to "Your direct index," then Edit next to "Your customizations."
  2. Adjust the stock's weight using the multiplier next to it. You can do this during setup or any time after you're invested.

Increasing weight

Multipliers of 2, 3, or 5, applied to the stock's original target weight. The multiplier is applied to the notional value, then all positions are re-weighted against the new total portfolio value.

 

Original

After 2x multiplier

Adjusted stock

20% ($20 of $100)

33.33% ($40 of new $120 total)

Each remaining stock (4)

20%

16.67%

Decreasing weight

Multipliers of 0.75, 0.5, or 0.25 apply the same way.

Original

After 0.5x multiplier

Adjusted stock

20% ($20 of $100)

11.11% ($10 of new $90 total)

Each remaining stock (4)

20%

22.22%

If you adjust more than one stock, each multiplier is applied to that stock's original, uncustomized target weight, not to an already-adjusted weight.

Adjusting the weight of a sector

The same mechanism applies as with stocks, but the multiplier applies to every stock within that sector at once, then the rest of the index re-weighs proportionally. This isn't available for the MVIS US Semiconductor or S&P 500 Information Technology indexes, since each has only one sector.

Increasing a sector's weight

Multipliers of 2, 3, or 5. The example below assumes 4 sectors of 10 stocks each, on a $100 portfolio.

 

Original

After 2x multiplier

Adjusted sector (total)

25% ($25 of $100)

40% ($50 of new $125 total)

→ each of its 10 stocks

2.5% ($2.50)

4% ($5)

Each other sector (3)

25% ($25)

20% ($25)

→ each of their 10 stocks

2.5% ($2.50)

2% ($2.50)

Decreasing a sector's weight

Multipliers of 0.75, 0.5, or 0.25.

 

Original

After 0.5x multiplier

Adjusted sector (total)

25% ($25 of $100)

~14.29% ($12.50 of new $87.50 total)

→ each of its 10 stocks

2.5% ($2.50)

~1.43% ($1.25)

Each other sector (3)

25% ($25)

~28.57% ($25)

→ each of their 10 stocks

2.5% ($2.50)

~2.86% ($2.50)

Keep in mind

  • Adjusting weights after you're invested can trigger trades with tax consequences. We'll show an estimated tax impact before you confirm any change. These estimates aren't guaranteed. Frec doesn't provide tax advice, so for anything material, it's worth checking with a tax professional.
  • Adding or removing a sector (or country) customization clears any individual stock customizations you've made. Make sector-level changes first, then customize individual stocks.
  • Excluded positions aren't necessarily sold all at once. Our algorithm winds them down over time in a tax-efficient way, as part of your regular rebalances. Contact us if you'd like a position liquidated faster.