Each year, investors and RIAs take stock of their portfolios and, as fall arrives, they start looking at opportunities for tax-loss harvesting. Per Investopedia, tax-loss harvesting entails lowering taxes by selling off securities at a loss. No matter what investors do, it’s hard to avoid losses in some part of a portfolio. What harvesting tax losses offer, however, is an opportunity to reinvest into new securities with upside of their own. That’s where active ETFs can help.
See more: This Active ETF Is Beating SPY Over Multiple Time Frames
Active ETFs present a wide variety of tax-efficient offerings. Where many investors are facing losses on mutual funds, active ETFs offer another option. ETFs are more tax efficient than mutual funds to start with, which can make them an appealing landing spot to reinvest funds from tax-loss harvesting. On top of that, ETFs operate more transparently and can appeal as a route into thematic investing.
Tax-Loss Harvesting Into Active ETFs
What’s more, for those investors who have been curious about active but haven’t joined the fun, tax-loss harvesting presents an appealing moment to do so. As long as investors avoid the so-called wash sale rule, which prohibits reinvesting loss sales into substantially similar securities, now could be the time to get into active.
By actively investing, ETFs can adapt quickly to important events or macroeconomic trends. What’s more, active funds often lean heavily on firms’ research capabilities, applying close scrutiny to firms in a way that many passive, committee-operated funds do not.
The T. Rowe Price Capital Appreciation Equity ETF (TCAF) presents one appealing option therein. The strategy charges just 31 basis points, a relatively low fee among active funds. Having launched just over a year ago, TCAF has already passed $2 billion in AUM. Its focus on fundamental research and holding just 100 of so firms could intrigue investors looking to reinvest tax-loss-harvested assets.
For more news, information, and analysis, visit the Active ETF Channel.
