Generating tax losses -- Gotham Triple Advantage S&P 500 Strategy LP - Series C

[benchmark]

Has anyone done tax loss harvesting? I was pitched with the Gotham fund, they claim to generate about 25% tax loss, while tracking S&P500. They charge a hefty fee at 1.85% of course. 

 

is this worthwhile? 

[Dinar]

31 minutes ago, benchmark said:

Has anyone done tax loss harvesting? I was pitched with the Gotham fund, they claim to generate about 25% tax loss, while tracking S&P500. They charge a hefty fee at 1.85% of course. 

 

is this worthwhile? 

I do tax harvesting with my own portfolio on a regular basis (at least once a month.)  I am not sure how 25% tax loss can be arrived at.  Historically, probably 50-100 basis points per annum for my portfolio if I had to guess. 

[benchmark]

As far as I understand it, they create a tracking position on S&P, then add long and short positions on the S&P 500 stocks, and loss-harvest everyday(?) to create the artificial loss. 

 

I'm curious a) about these guys reputation; b) if there are other firms offering similar funds.

 

[Dinar]

1 hour ago, benchmark said:

As far as I understand it, they create a tracking position on S&P, then add long and short positions on the S&P 500 stocks, and loss-harvest everyday(?) to create the artificial loss. 

 

I'm curious a) about these guys reputation; b) if there are other firms offering similar funds.

 

I know Schwab, Fidelity and GS offer this, probably others. 1.85% fee is insane, and will negate the entire tax advantage.  

[fareastwarriors]

Kind of like this?

 

Wall Street Takes Tax-Loss Harvesting to the Next Level

[lnofeisone]

I don't have a point of view on Gotham, but I have worked on this issue for the IRS. At best, this tax deferral strategy can give you access to funds now. You'll pay the tax once you unwind the entire portfolio. So it may make sense in some cases (say you are on the verge of retiring and will shift to lower tax bracket in few years but need funds now).

 

1.85% is a relatively reasonable fee. PGIM charges 3%. Personally, I wouldn't pay for this because you can do it yourself.

[Dinar]

1 hour ago, lnofeisone said:

I don't have a point of view on Gotham, but I have worked on this issue for the IRS. At best, this tax deferral strategy can give you access to funds now. You'll pay the tax once you unwind the entire portfolio. So it may make sense in some cases (say you are on the verge of retiring and will shift to lower tax bracket in few years but need funds now).

 

1.85% is a relatively reasonable fee. PGIM charges 3%. Personally, I wouldn't pay for this because you can do it yourself.

it is not a reasonable fee.  The entire tax savings are effectively consumed by the fee.  

[Jay Rent]

A better term for this is 'Direct Indexing' .    Some wealth managers like Josh Brown - CNBC switched their clients to direct investing closer to market bottoms in 2021, 2022.  It's harder if you already have a significant amount of unrealized capital gains.     It can be popular for those in high tax brackets.

 

Fidelity direct indexing fees seem to be close to 35 basis points and your index portfolio returns might improve  by 1% (ignoring any capital gains from liquidating your funds)

 

Can't speak for Gotham and achieving 25% tax harvesting but it might be possible as a one off (switching after a significant decline in the overall market.)

 

 

[lnofeisone]

2 hours ago, Dinar said:

it is not a reasonable fee.  The entire tax savings are effectively consumed by the fee.  

It's reasonable for this space. You can generate savings well in excess of the fee but a lot of assumptions have to align. Like I said, I wouldn't pay for someone to do it. Most investors who know how to short equities and know how to select tax lots with their brokers can do this strategy themselves.

[Dinar]

1 hour ago, lnofeisone said:

It's reasonable for this space. You can generate savings well in excess of the fee but a lot of assumptions have to align. Like I said, I wouldn't pay for someone to do it. Most investors who know how to short equities and know how to select tax lots with their brokers can do this strategy themselves.

Would you mind showing how the math works then, since I cannot get it to work.  Thank you.

[lnofeisone]

4 hours ago, Dinar said:

Would you mind showing how the math works then, since I cannot get it to work.  Thank you.

Say you have $100 ST gain on a $100 investment (total $200) AND you make over $518,900. Would you rather pay your ST rate of 37% ($37) or

 

$6 (3% fee) +  0 (cap gain if your income next year falls to 0) --> say you have y to y volatile income

$6 (3% fee) + 15% (LT cap gain rate)--> say you are single with income under $518,900

$6 (3% fee) + 20% (LT cap gain rate)--> say you are single and over $518,900

 

Again, this is packed with assumptions, but there are people for whom this makes sense.