Let The Games Begin

BlackRock got in the game. So did Vanguard. Morgan Stanley’s a player now. Schwab is stretching its hammies. There’s room for multiple players in the direct indexing space, but the jockey I’m riding is Franklin, who just acquired O’Shaughnessy Asset Management.

Institutional money has been building custom indexes for a long time, but retail investors are just starting to gain access to it. This was made possible by improvements in technology and especially the advent of free trading.

The 30% annual growth in assets is impressive, but at just ~$350 billion, the game has just begun (hiyo hiyo).


We’ve been working with the OSAM team since they rolled out Canvas in 2019. We were one of their first five partners on the platform, so clearly I’m biased in choosing them. But that doesn’t mean I’m wrong.

I’ve seen maybe a hundred wealth tech platforms over the years. Most of them are a different version of something that already exists. They’ll fall into one of the categories below:

  • Financial planning software
  • A CRM
  • A portfolio reporting tool
  • Rebalancing software
  • Portfolio construction and data analytics
  • Risk tolerance questionnaire

It takes a lot to pique my interest, so when I tell you that I was giddy when I saw Canvas in OSAM’s headquarters, believe me when I tell you I was doing backflips, metaphorically speaking. I said to my partners, “the next billion dollars we raise will be on this platform.” It’s been about two years, and we’re approaching $500 million.

Canvas and the OSAM team have delivered in spades on everything I dreamed it could be when I first saw the software. Here are just a few of the things it can do.

Tax-loss harvesting.

It’s real, and it works. During the bear market of 2020, we were harvesting losses all while tracking our model portfolios. It’s difficult for advisors to do tax-loss harvesting at scale when markets are moving so quickly.

Concentrated positions

If a client comes to us with significant embedded gains on an index that we would be buying for them, we will use whatever they come to us with.  Whether we get our large-cap exposure through Vanguard, State Street, or BlackRock doesn’t matter to us. They’re all the same, so we’ll treat them as such. So we’ll use IVV or SPY or whatever it is and build a portfolio around that.

Where it gets more interesting is what you can do with clients who have owned Apple for ten years or who work for Chevron. Let’s start with Apple.

It might be the best company of all time, but that doesn’t mean it should be 20% of your overall portfolio. We can go down the line of fallen companies that once seemed invincible that turned out to be mortal. That’s for another day.

What we’ll do first is figure out how we want to scale down our position over time. We want to be sensitive to the client’s tax situation and the fact that it’s difficult just to let go entirely of something that’s treated you so well for so long. So if we want Apple to go from 20% down to a market cap weighting over the next ten years, we can develop a potential glide path. I say potential because how the stock performs will impact how quickly we can wind down the position.

Along the way, we can tell the software how much taxes we want to pay. Not how much capital gains we want to take, but actual tax dollars spent. We enter the client’s tax information, and the machines and portfolio managers do the rest. We can also go a step further and remove all stocks that are highly correlated to Apple. If we want to eliminate the other FANG stocks, and I’m not saying we do, but it would be effortless to do that as well.

If you work for Chevron and your livelihood is tied to the energy market, do you need to own Exxon-Mobil? Do you need to hold any other energy companies at all? In an industry where all stocks more or less move together, it probably makes sense to eliminate that entirely.


Values are personal. When you buy an ESG fund, you don’t get to choose what goes in there. Canvas has ten different ESG screens that a client can choose from:


  • Carbon footprint & climate change.
  • Deforestation & biodiversity
  • Pollution & waste management
  • Water stress


  • Data privacy
  • Diversity & inclusion
  • Fair labor rights & supply chain


  • Corruption & bribery
  • Gender diversity & women empowerment
  • Governance structure & accountability

If a client wants to do something that isn’t in one of the buckets above, OSAM can build it for us. If you’re into ESG investing, this is the way to do it.

Active management

Jim O’Shaughnessy wrote the book on quantitative asset management. Contrary to popular opinion, I believe you can build a portfolio that blends the best of both active and index-oriented strategies. The two are not diametrically opposed. OSAM’s core factor strategies are value, shareholder yield, and momentum. Those are the building blocks. As the painter of this blank Canvas, we get to decide how much factor exposure we want in different areas of the investable universe.

ETFs are going to be just fine. They’re still a wonderful tool for nearly  all investors. I still use them and have no plans to stop. But I also believe that custom indexes are just getting started and have a long runway ahead.

I couldn’t be happier for the whole OSAM team and am excited to watch the platform get better and better.

I spoke about all this and much more on the latest episode of The Compound and Friends