August 3, 2023 —
We’ve had many conversations with people asking us about tax strategies. In response, we’ve done a deep-dive into the topic on two fronts.
First, we met with Schwab Asset Management to learn about their tax-mitigation strategies and were pleased to learn that Schwab offers our clients a range of tax-loss harvesting (TLH) options, with preferential pricing relative to their retail offerings.
Second, we did a lot of reading to understand the tax-loss harvesting landscape across the industry, as well as to gain intuition into when it is and isn’t appropriate. Not being fully satisfied with what we learned, we did our own analytical work on tax-loss harvesting strategies (see links below).
Our conclusion is that tax-loss harvesting can make sense, but only in quite specific circumstances, which we lay out in our research. If you’d like to talk to us about tax-loss harvesting or other investing or financial planning topics, just fill out this form, email us at email@example.com, or call us at 212-537-3877. We’re always glad to connect.
Check out our latest research at the links below:
- A research piece on annuitization versus spending from wealth in retirement.
- A piece on tax-loss harvesting, when it helps, and when it doesn’t. This will hopefully answer at least some of the questions people have asked us.
- A more technical white paper on TLH, where we discuss the details of our simulation analysis and go through very detailed examples.
If you’d like to receive our research in real time, please sign up on our Substack site.
Positioning for the month ahead
July was a strong month for QuantStreet and for markets overall, and our core strategy performance was in-line with our asset allocation benchmarks. In July, we were overweight US and technology stocks, with an allocation to high-quality international and domestic government bonds.
Our portfolio allocation reflects a combination of price trend and our machine-learning return forecasting model. We maintain our tech exposure despite ever higher valuations because, in our view, the technological revolution that is under way will be transformational for our world. Valuations are indeed stretched. But according to some of our forecasting models, the impact of stretched valuations is offset by other factors (like earnings growth, lagged volatility, and price trend).
We retain a substantive allocation to Treasuries and non-US-dollar, high quality government debt. There are two reasons: First, we believe Fed policy is now deeply restrictive, which will slow economic growth and inflation, and will ultimately be good for longer-dated quality government debt; second, our bond positions provide a nice risk offset against our equity exposures.
In August, we added small-caps (i.e., an allocation to stocks with considerably lower market capitalizations than S&P 500 firms) and international stocks to the portfolio mix.
Recall that our forecasting models use machine-learning techniques to select forecasting variables that are specifically targeted to a particular asset class. We also use more traditional forecasting and valuation frameworks to corroborate these predictions. International stocks and especially small-caps look very attractive based on this analysis.
The second part of our signal is a trend component that looks at how each asset class has performed over the recent past. Based on this signal, both international stocks and small-caps are starting to look attractive as well because of their recent strong performance. With our forecasting models and trend reinforcing each other, we increased allocations to these two equity market segments.
 If you’d like to details about all of our holdings last month, or about QuantStreet’s performance since launch, please contact us and we’ll be glad to provide details.