Direct indexing > Frec news > Long short > New features
Use existing ETFs to fund or grow a direct index
5 min read
Previously on Frec, if you wanted to fund or grow a direct index with ETFs, we’d sell the ETFs first and use the proceeds. Now, you can use eligible ETFs to partially fund or grow a direct index, while keeping as many of your original ETF shares as possible.
This update makes it much easier to meet strategy minimums using assets you already have, unlocks tax loss harvesting opportunities you might miss by just holding the ETF, and lets you consolidate positions tax-efficiently.
(Note: This update is only available for classic and long short direct indices, not Diversify.)
How it works
We updated our risk model to analyze the market exposure inside your ETFs. Instead of starting from scratch, we’ll incorporate your existing ETF that has overlapping exposure with the index you select.
When setting up or adding to long short strategies, the optimizer takes into account the ETF’s market exposure when building or adjusting the extensions. For example, if your contributed ETF is heavily exposed to tech, the rest of your portfolio is designed to help offset that concentration.
Note that while our primary goal is to retain your shares, eligible ETFs may still be partially sold if holding the full position would cause over-concentration.
Rules and limitations
To keep your portfolio balanced and closely tracking its benchmark, two primary allocation caps apply:
- ETFs can make up to 70% of your direct index
- No single ETF can make up more than 50% of the total portfolio value.
The remaining balance can be funded with cash, stocks, or a mix of both. For example, for a $500,000 classic or long short direct index, you could fund it with $200,000 of SPY, $150,000 of QQQ, and $150,000 in cash.
If your contributed holdings exceed these caps, we’ll show you a current breakdown of any estimated capital gains at that time. As with any tax-related estimate, we recommend consulting a qualified tax advisor about how this may affect your specific tax situation.
Supported and unsupported ETFs
See below for some supported ETFs. Fixed-income and leveraged ETFs, such as TQQQ, aren’t supported yet. If you fund or contribute to a direct index using an unsupported ETF, we’ll sell it and reinvest the proceeds into that direct index.
Supported ETFs
Large Cap US
| Ticker | Name | Region |
| SPY | State Street SPDR S&P 500 ETF Trust | United States |
| SPYM | State Street SPDR Portfolio S&P 500 ETF | United States |
| IVV | iShares Core S&P 500 ETF | United States |
| VOO | Vanguard S&P 500 ETF | United States |
| XLG | Invesco S&P 500 Top 50 ETF | United States |
| USMC | Principal US Mega-Cap ETF | United States |
| IWB | iShares Russell 1000 ETF | United States |
| DIA | State Street SPDR Dow Jones Indust Avg ETF Trust | United States |
| GSEW | Goldman Sachs Equal Weight US Large Cap Equity ETF | United States |
| RSP | Invesco S&P 500 Equal Weight ETF | United States |
| QQQ | Invesco QQQ Trust, Series 1 | United States |
| QQQM | Invesco NASDAQ 100 ETF | United States |
| BKLC | BNY Mellon US Large Cap Core Equity ETF | United States |
| SCHX | Schwab US Large-Cap ETF | United States |
| FNDX | Schwab Fundamental US Large Company ETF | United States |
| SFY | SoFi Select 500 ETF | United States |
| VV | Vanguard Morningstar Large Cap ETF | United States |
Small & mid cap US
| IJH | iShares Core S&P Mid-Cap ETF | United States |
| IWR | iShares Russell Mid-Cap ETF | United States |
| SCHM | Schwab US Mid-Cap ETF | United States |
| VO | Vanguard Morningstar Mid Cap ETF | United States |
| DFAS | Dimensional U S Small Cap ETF | United States |
| SCHA | Schwab US Small-Cap ETF | United States |
| VB | Vanguard Morningstar Small Cap ETF | United States |
| SMMD | iShares Russell 2500 ETF | United States |
| FNDA | Schwab Fundamental US Small Company ETF | United States |
| VXF | Vanguard Extended Market Index Fund ETF | United States |
All cap/total market US
| ITOT | iShares Core S&P Total US Stock Market ETF | United States |
| SCHB | Schwab US Broad Market ETF | United States |
| SPTM | State Street SPDR Prft S&P 1500 Comp Stk Mkt ETF | United States |
| VTI | Vanguard Total Stock Market Index Fund ETF | United States |
| AVUS | Avantis US Equity ETF | United States |
Sector or industry
| FTEC | Fidelity MSCI Information Technology Index ETF | United States |
| VGT | Vanguard Information Technology Index Fund ETF | United States |
| XLK | State Street Technology Select Sector SPDR ETF | United States |
| SMH | VanEck Semiconductor ETF | United States |
| XLE | State Street Energy Select Sector SPDR ETF | United States |
| VDE | Vanguard Energy Index Fund ETF | United States |
| VNQ | Vanguard Real Estate Index Fund ETF | United States |
| VPU | Vanguard Utilities Index Fund ETF | United States |
| XAR | State Street SPDR S&P Aerospace & Defense ETF | United States |
| ARKK | ARK Innovation UCITS ETF USD Acc | Global |
| BUZZ | VanEck Social Sentiment ETF | United States |
Global
| VT | Vanguard Total World Stock Index Fund ETF | Global |
Developed & emerging
| IEFA | iShares Core MSCI EAFE ETF | International Developed |
| SPDW | State Street SPDR Portfolio Devt World ex-US ETF | International Developed |
| VEA | Vanguard Tax Managed Fund FTSE Developed Markets ETF | International Developed |
| SCHF | Schwab International Equity ETF | International Developed |
| FEZ | State Street SPDR EURO STOXX 50 ETF | International Developed |
| VXUS | Vanguard Total International Stock Index Fund ETF | Int’l Dev. & EM |
| IEMG | iShares Core MSCI Emerging Markets ETF | Emerging Market |
| VWO | Vanguard Emerging Markets Stock Index Fund ETF | Emerging Market |
| SCHE | Schwab Emerging Markets Equity ETF | Emerging Market |
| SPEM | State Street SPDR Portfolio Emerging Markets ETF | Emerging Market |
| JPEM | JPMorgan Diversified Return Emerging Mkts Eqty ETF | Emerging Market |
| PDN | Invesco RAFI Developed Mkts ex-US SM ETF | International Developed |
| FNDF | Schwab Fundamental Intl Equity ETF | International Developed |
| INTF | iShares International Equity Factor ETF | International Developed |
| IVLU | iShares MSCI Intl Value Factor ETF | International Developed |
| DIVI | Franklin International Core Dividend Tilt Idx ETF | International Developed |
Factor & dividend based
| DGRO | iShares Core Dividend Growth ETF | United States |
| HDV | iShares Core High Dividend ETF | United States |
| VIG | Vanguard Dividend Appreciation Index Fund ETF | United States |
| VYM | Vanguard High Dividend Yield Index Fund ETF | United States |
| SCHD | Schwab US Dividend Equity ETF | United States |
| USMV | iShares MSCI USA Min Vol Factor ETF | United States |
| SPLG | Invesco S&P 500 Low Volatility UCITS ETF Acc | United States |
| IVW | iShares S&P 500 Growth ETF | United States |
| SCHG | Schwab US Large-Cap Growth ETF | United States |
| SPYG | State Street SPDR Portfolio S&P 500 Growth ETF | United States |
| VUG | Vanguard Morningstar Growth ETF | United States |
| VONG | Vanguard Russell 1000 Growth Index Fund ETF | United States |
| VOOG | Vanguard S&P 500 Growth Index Fund ETF | United States |
| IVE | iShares S&P 500 Value ETF | United States |
| SCHV | Schwab US Large-Cap Value ETF | United States |
| SPYV | State Street SPDR Portfolio S&P 500 Value ETF | United States |
| VTV | Vanguard Morningstar Value ETF | United States |
| IWN | iShares Russell 2000 Value ETF | United States |
| AVUV | Avantis US Small Cap Value ETF | United States |
| VBR | Vanguard Morningstar Small Cap Value ETF | United States |
| IWS | iShares Russell Mid-Cap Value ETF | United States |
| VOE | Vanguard Mid-Cap Value Index Fund ETF | United States |
| MDYV | State Street SPDR S&P 400 Mid Cap Value ETF | United States |
Values based
| ESGD | iShares ESG Aware MSCI EAFE ETF | International Developed |
| ESGE | iShares ESG Aware MSCI EM ETF | Emerging Market |
| ESML | iShares ESG Aware MSCI USA Small-Cap ETF | United States |
| DSI | iShares ESG MSCI KLD 400 ETF | United States |
| ESGV | Vanguard ESG US Stock ETF | United States |
Get started
You can start a new direct index or contribute to an existing one on both mobile and web.
To start a new direct index, log into your account, go to the Invest page > choose a classic or long short direct indexing portfolio > select the ETFs or stocks you’d like to fund with, including specific tax lots if you choose.
To move ETFs into an existing direct index, select the index from the Overview page > Transfer > Move stocks > select the ETF(s) you’d like to move, including specific tax lots if you choose.
If you don’t already have stocks on Frec, you’ll need to transfer them in first, which takes about 4–6 business days. Before you confirm, we’ll show you any current estimated taxable gains, along with a breakdown of how much of your ETF will be incorporated versus sold if applicable.
Investing involves risk, including the risk of loss. Long short strategies increase risk through margin borrowing and short positions. Tax-related estimates in this article are hypothetical, are not tax advice, and depend on your individual tax circumstances. Please consult a qualified tax advisor about your specific situation.
