Tax-Managed Factor Strategies

Forthcoming, Financial Analysts Journal

20 Pages Posted: 14 Jan 2019

See all articles by Lisa R. Goldberg

Lisa R. Goldberg

University of California, Berkeley; Aperio Group

Pete Hand

Aperio Group

Taotao Cai

Aperio Group

Date Written: January 4, 2019

Abstract

We examine the tax efficiency of an indexing strategy and six factor tilts. Between June 1995 and March 2018, average value added by tax management exceeded 1.4% per year at a 10- year horizon for all the strategies we considered. Tax-managed factor tilts that are beta 1 to the market generated average tax alpha between 1.6% and 1.9% per year, while average tax alpha for the tax-managed indexing strategy was 2.3% per year. These remarkable results depend on the availability of short-term capital gains to offset. To a great extent, they can be attributed to loss harvesting and the tax rate differential.

Keywords: tax-managed investment, loss harvesting, tax alpha, rate differential, factor tilt, value, momentum, size, quality, minimum variance

JEL Classification: G11, G18, H24

Suggested Citation

Goldberg, Lisa R. and Hand, Pete and Cai, Taotao, Tax-Managed Factor Strategies (January 4, 2019). Forthcoming, Financial Analysts Journal. Available at SSRN: https://ssrn.com/abstract=3309974

Lisa R. Goldberg (Contact Author)

University of California, Berkeley ( email )

Department of Statistics
367 Evans Hall
Berkeley, CA 94720-3860
United States

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Pete Hand

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Taotao Cai

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

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