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Tax Managed Funds : Same As They Ever Were ?
When stocks start the year soaring like this , tax management becomes trickier .
By Christopher Robbins
ADVISORS AND INVESTORS HAVE long relied on tax-managed strategies and funds to handle assets ( at least those residing outside of shelters like trusts , insurance policies and retirement accounts ). But what happens inside these products when broad market indexes like the S & P 500 start the year by rising approximately 17 % in six months ?
Actually , nothing should change much . There ’ s still a lot of opportunity for tax management , according to Monali Vora , global head of quantitative equity solutions at Goldman Sachs .
“ It ’ s true while market return has been strong , there is a lot of dispersion among the stocks in the market ,” says Vora . “ If you ’ re trying to take losses , there ’ s lots of availability to harvest losses in every market cycle because of that dispersion .”
As Vora examined U . S . large-cap returns through June 30 , she says that 300 stocks had been held by Goldman Sachs year to date at a gain , while 203 were held as losses .
According to J . Womack , global head of investment solutions for SEI , most of the large-cap stock index returns for the year have come from the group called the “ magnificent seven ”: Apple , Amazon , Alphabet , Microsoft , Meta , Nvidia and Tesla . These equities accounted for nearly three-quarters of the gain in the S & P 500 , leaving plenty of room for the managers of tax-managed strategies to maneuver .
“ It ’ s true that there are far fewer opportunities to harvest losses this year versus last year on a broad index level , but we have other circumstances and situations to consider , like when the client invested and where their positions are versus cost-basis levels as volatility has extended over the years ,” says Womack .
So some things have stayed the same , yet tax management must change over time . There are new account and product structures , and new technology being brought to bear on assets in taxable accounts , allowing investors to find every possible opportunity for tax efficiency and to optimize money moves at every level .
For example , when Eaton Vance sells depreciated positions to harvest losses within tax-managed client accounts , it often reinvests the proceeds using new methods and technologies , says Brian Smith , head of the wealth strategies group at the Morgan Stanley subsidiary .
“ If you stack-rank every lot in a portfolio from most appreciated to least , you can peel off portions with the least embedded cap gains and use those to fund direct-indexing portfolios , which you can start to use towards the objective of tax-loss harvesting from single-stock positions providing losses on a 1099 ,” says Smith . “ Then , on the other extreme , looking at a portfolio ’ s most appreciated assets , we look towards more traditional strategies like exchange funds . So we can approach tax
SEPTEMBER 2023 | FINANCIAL ADVISOR MAGAZINE | 45