With the end of the year quickly approaching, tax-loss harvesting is top of mind for many advisors.
U.S. large-cap growth may be a compelling place for advisors to begin tax-loss harvesting. The segment, as measured by the Russell 1000 Growth Index, is still below its all-time high. As of the end of November, the benchmark growth index is down on a price level basis since late December 2021.
This may be an advantageous strategy for investors currently getting U.S. large-cap growth exposure from mutual funds or passive ETFs. For mutual fund investors, tax-loss harvesting is an opportunity to vehicle shift into a more tax-efficient ETF.
“Advisors are increasingly turning to ETFs for a more tax-efficient approach,” Todd Rosenbluth, head of research at VettaFi, said. “With many mutual funds, advisors and end clients have a tax burden that eats into the gains of a successful large cap growth strategy.”
Investors in passive growth ETFs could also potentially benefit from tax-loss harvesting. Shifting exposure to an active ETF may help investors better position portfolios to capture current opportunities.
Tax-Loss Harvesting and a Compelling US Large-Cap Growth Substitute
While no investor wants to lose money on an investment, these losses can potentially be used to help reduce one’s tax bill.
Tax-loss harvesting involves selling investments at a loss, then using the capital losses to offset capital gains and/or ordinary income. If losses exceed gains or only losses are incurred, up to $3,000 can be used to offset ordinary income in the current year. Notably, any amount above $3,000 can be carried forward for use in future years.
The final step using the money from the sale to replace the investment. For U.S. large-cap growth exposure, the actively managed Harbor Long-Term Growers ETF (WINN) may be worth consideration.
WINN seeks to exploit market inefficiencies by investing in companies with under-appreciated multiyear structural growth opportunities. Jennison Associates manages the active ETF, employing a proprietary combination of bottom-up, fundamental research, and systematic portfolio construction.
WINN charges 57 basis points, making it a cost-efficient substitute for a U.S. large-cap growth exposure.
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Investors should carefully consider the investment objectives, risks, charges and expenses of a Harbor fund before investing. To obtain a summary prospectus or prospectus for this and other information, visit harborcapital.com or call 800-422-1050. Read it carefully before investing.
All investments involve risk including the possible loss of principal. Please refer to the Fund’s prospectus for additional risks. Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate and when redeemed may be worth more or less than their original cost. Returns for periods less than one year are not annualized. For current standardized performance, fees, holdings, and important information: WINN
WINN: All investments involve risk including the possible loss of principal. There is no guarantee that the investment objective of the Fund will be achieved. Stock markets are volatile and equity values can decline significantly in response to adverse issuer, political, regulatory, market and economic conditions. At times, a growth investing style may be out of favor with investors which could cause growth securities to underperform value or other equity securities. Since the Fund may hold foreign securities, it may be subject to greater risks than funds invested only in the U.S. These risks are more severe for securities of issuers in emerging market regions. A non-diversified Fund may invest a greater percentage of its assets in securities of a single issuer, and/or invest in a relatively small number of issuers. It is more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio.
The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company.
The views expressed herein may not be reflective of current opinions, are subject to change without prior notice, and should not be considered investment advice.
This information should not be construed as specific tax, legal, or investment advice. If you have questions, please consult with your tax adviser to determine the appropriate use of this information for your tax information.
Jennison Associates LLC is an independent subadvisor to the Harbor Long-Term Growers ETF.
This article was prepared as Harbor Funds paid sponsorship with VettaFI.
Foreside Fund Services, LLC is the Distributor of the Harbor ETFs.