By Solomon G. Teller, CFA, Chief Investment Strategist, Green Harvest Asset Management
The S&P 500 lost 4.7% in September in its worst monthly performance since March 2020. Neither gold nor Treasury bonds, nor crypto, offered safe haven. However, last month’s volatility did offer multiple opportunities to harvest tax benefits (i.e., realized losses) to improve after-tax returns. Below are harvesting highlights for September with accompanying chart and statistics on page 2:
• Overall, markets fell enabling multiple loss-capturing opportunities. Specifically, key factors to exploit were at the sector level.
- Overall, markets fell enabling multiple loss-capturing opportunities. Specifically, key factors to exploit were at the sector level.
- Nine out of the eleven sectors that make up the S&P 500 experienced greater intra-month declines than the broad index with the average drawdown among sectors at 6.7% (more than 1.5% greater than the overall S&P 500’s drawdown).
- Three of the typically most defensive, least volatile sectors (Utilities, Health Care and Consumer Staples) were the most heavily harvested (representing 40% of trading collectively).
- InfoTech, the largest sector, declined a full percentage point more than the broad index, enabling incremental tax benefits to be captured.
- In a turn-about event, Energy, already harvested heavily in prior months, was the best performing (up 9%) and least harvested sector.1
- The S&P 500’s lowest point for the month arrived in a nearly vertical descent during the final 30 minutes of trading last Thursday, a difficult period to be trading. Green Harvest, however, executed more harvesting-related trades on September 20th, when five of the eleven sectors bottomed.
- Outside the U.S., Latin America and Switzerland saw the steepest declines and were the two most heavily harvested areas.
September was a prime month for harvesting tax benefits, succinctly illustrating how a smart, systematic, harvesting approach can maximize opportunities for improving after-tax returns. Targeting sectors and regions is just one way that Green Harvest can add additional tax benefits.
1 Energy stocks are up again at time of writing on October 4th, continuing to buck the broader market.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when the portfolio is liquidated. Current performance may be higher or lower than that quoted. Performance of an index is not illustrative of any particular investment. It is not possible to invest directly in an index.
GHAM does not provide tax advice and does not employ a Certified Public Accountant on its staff. We work with outside accounting firms and tax counsel that provide guidance and updates on relevant tax law, and we have reviewed the tax treatment of our transaction structures with those professional advisors. Based on those reviews, GHAM is satisfied that our structures support the desired tax results, but we urge clients to consult their own legal and tax advisors regarding the tax treatment of the transactions effected in their GHAM account. Such transactions include ETFs. Federal, state and local tax laws are subject to change. GHAM is not responsible for providing clients updates on any changes in tax laws, rules or statutes. Clients remain fully responsible for their own tax positions. Although GHAM does not provide tax, legal or accounting advice, we stand ready to assist clients and their advisors in reviewing the relevant tax rules.
Reasons to harvest capital losses, sources of capital gains and the suggestion that mutual funds distribute capital gains are for illustrative purposes only. The availability of tax alpha is highly dependent upon the initial date and time of investment as well as market direction and security volatility during the investment period. Tax loss harvesting outcomes may vary greatly for clients who invest on different days, weeks, months and all other time periods. A client’s tax alpha will depend on the client’s individual circumstances, which are outside of GHAM’s knowledge and control. All performance and tax benefit capture figures are derived from data provided from multiple third-party sources. All estimates were created with the benefit of hindsight and may not be achieved in a live account. The data received by GHAM is unaudited and its reliability and accuracy is not guaranteed.
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