One appeal of broad stock index funds is their tax efficiency: They don’t distribute a lot of taxable capital gains, in large part because the index components don’t change frequently.

But some firms say there is an even more tax-efficient approach—call it Indexing 2.0—at least for people with a lot of money to invest. It involves holding all or most of the stocks that comprise an index, rather than an index fund, to not only minimize taxable gains but also generate extra taxable losses that investors could use to offset gains...