Asset Managers -
Making Tax-Loss Harvesting Easy with YCharts
As year-end approaches, nearly every advisor is thinking about taxes for their clients; how to harvest losses and maximize after-tax returns. With YCharts, help advisors think through their tax-loss harvesting process, making sure it is efficient and collaborative.
First, use YCharts Comp Tables to identify a portfolio’s losers — which funds have sold off this year? Next, find alternatives with the Fund Screener — what’s a suitable replacement for the losing funds you may sell? Finally, evaluate exposures after the change — YCharts Model Portfolios and Comparison Reports verify that exposures remain consistent both before and after tax-loss harvesting.
Below, we’ll walk through a tax-loss harvesting workflow and identify the most valuable YCharts features for each step in the process. (Note: We always recommend discussing any tax strategies with a CPA; this article provides only a hypothetical example of tax-loss harvesting).
Identify Underperforming Asset Classes and Funds
First, use YCharts Comp Tables to identify the asset classes which have underperformed year-to-date. The Major Asset Class Index Performance template below shows S&P GSCI, Dow Jones US Real Estate Index, and Russell 1000 Value indices have all underperformed with negative returns year-to-date.
Knowing the underperforming asset classes, look at the portfolio in question to see which holdings fit within the underperformers and could be sold at a capital loss. Using YCharts Comp Tables once again, add the portfolio’s holdings to compare their returns over multiple periods, as shown below.
Noting that this portfolio’s worst performer is the Vanguard Real Estate Index Admiral fund, which fits within the broad real estate asset class identified as an underperformer, taxes can be offset by selling this position and purchasing an alternative real estate fund.
Find a Suitable Alternative Fund
Use YCharts Fund Screener to identify a replacement for any underperforming fund. To best match the exposures of the fund being sold, screen for real estate index funds within the mid cap/blend style. See the screen below with several criteria filters.
Sort the screen results by YTD Total Returns (Daily) and add the metrics “Expense Ratio,” “Potential Capital Gains,” and “3Y Beta.” The ideal alternative fund would be less expensive to own with low potential cap gains, and a relatively similar (or lower) beta to the Vanguard Real Estate Index Admiral fund.
The screen results and added metrics show the iShares Cohens and Steers REIT ETF outperformed the Vanguard fund, is far less exposed to potential capital gains, and has a lower beta. However, its expense ratio may be a sticking point. In comparison, the Fidelity MSCI Real Estate ETF performed slightly worse, but boasts an even lower expense ratio and a nearly equivalent beta. Regardless of which fund you choose, this Screen allows you to drill down on your options through a variety of metrics.
Evaluate Your Exposures After The Change
After choosing to sell the Vanguard mutual fund, which represented 10% of the hypothetical portfolio, replace it with the Cohen & Steers ETF in a YCharts Model Portfolio. Create a PDF Comparison Report to measure the portfolio’s exposures before and after swapping out the real estate fund. The report excerpts below show how stock style and sector exposure both remained nearly identical (Portfolio A represents the portfolio before tax-loss harvesting, while Portfolio B is after).
Stock Style Exposure
Stock Sector Exposure
Using various YCharts tools, manage the tax-loss harvesting process efficiently from start to finish. We identified holdings that could be sold to offset capital gains, filtered for the most suitable and attractive replacements, and used visuals to show how those transactions would affect the portfolio’s exposures.
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