Understanding a Tax-Aware Defensive Equity Long-Short Strategy

22 Pages Posted: 22 May 2020

See all articles by Nathan Sosner

Nathan Sosner

AQR Capital Management, LLC

Ted Pyne

AQR Capital Management, LLC

Joseph Liberman

AQR Capital Management, LLC

Steven Liu

AQR Capital Management, LLC

Date Written: April 27, 2020

Abstract

We describe a Tax-Aware Defensive Equity Long-Short (TADELS) strategy, including its construction and pre-tax and after-tax performance. TADELS closely replicates the pre-tax performance of a similar tax-agnostic strategy and has the potential to achieve a meaningful tax benefit for a taxable investor.

TADELS tax benefit remains even when accounting for liquidation taxes. We show that TADELS is attractive in both up- and down-market periods and can diversify typical hedge fund allocations. Moreover, TADELS tax benefit can make an investor’s entire portfolio more tax-efficient.

Keywords: Defensive Investing, Long-Short Equity Strategies, Quantitative Strategies, Tax-Aware Portfolio Management

JEL Classification: G11, G50, H24

Suggested Citation

Sosner, Nathan and Pyne, Ted and Liberman, Joseph and Liu, Steven, Understanding a Tax-Aware Defensive Equity Long-Short Strategy (April 27, 2020). Available at SSRN: https://ssrn.com/abstract=3586760 or http://dx.doi.org/10.2139/ssrn.3586760

Nathan Sosner (Contact Author)

AQR Capital Management, LLC ( email )

One Greenwich Plaza
Greenwich, CT 06830
United States

Ted Pyne

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Joseph Liberman

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Steven Liu

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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