Tax-Managed Factor Strategies

Lisa R. Goldberg, Pete Hand and Taotao Cai

Financial Analysts Journal, 2019, vol. 75, issue 2, 79-90

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 1.50% 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 1.59% and 1.89% per year, while average tax alpha for the tax-managed indexing strategy was 2.26% 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.Disclosure: Aperio Group manages equity for taxable investors.Editor’s NoteSubmitted 22 March 2018Accepted 13 November 2018 by Stephen J. Brown

Date: 2019
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DOI: 10.1080/0015198X.2019.1567191

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