Overview & Benefits

Measurable tax alpha

Taxes are a constant—they are constantly eroding returns. As a taxable investor, ignoring this effect is tantamount to willingly accepting lower performance. While index funds and ETFs represent proven strategies to increase tax-efficiency, we believe they are only limited solutions.

For investors with sufficient assets, Aperio’s Active Tax Management strategy overlays sophisticated tax-loss harvesting on top of an equity index-tracking portfolio. Depending on the client’s tax situation, modeled after-tax returns are estimated to improve annual excess return by 1.03%–2.40% (before any fee differential) over a 10-year period versus a comparable index fund or ETF. The overall objective of Aperio’s tax-management strategy is to provide consistent “tax alpha” with lower comparative risk than strategies that attempt to boost pre-tax performance.

Building and managing the tax-efficient portfolio

Aperio constructs portfolios in separately managed accounts (SMAs) composed of individual stocks that track a target benchmark. Taking advantage of the natural price movements in stocks, we continuously monitor and systematically rebalance portfolios to recognize tax losses from securities that have declined. Realized tax losses can offset taxable capital gains generated by other assets such as hedge funds, active mutual funds, private equity, company stock, or the sale of private businesses. This reduction in taxes paid can improve the after-tax returns and provide greater after-tax wealth for the investor.

Applying insight: transitioning existing portfolios

One of the biggest challenges investors and their advisors face is transitioning existing portfolios, which may be spread over multiple accounts, trusts, and firms. Consolidating and rebalancing them can often trigger unnecessary taxable events. We analyze existing accounts and map out transition strategies to help minimize the tax impact to the client. Situations can involve local and state taxes, AMT status, estate planning issues, trust structures, tax-efficient charitable gifting, concentrated positions, or other complications.

The bottom line

Aperio’s Active Tax Management strategy provides the advantages of conventional indexing—lower cost and transparent capture of equity risk premium—alongside a measurable and predictable tax alpha.

Hyper-customization

Active Tax Management can be combined with Factor Tilts and Socially Responsive Indexing/ESG to provide a truly customized solution.

The estimated excess returns mentioned above are hypothetical and have been calculated using back-testing and does not represent actual trading results. They have been prepared with the use of past performance and past performance is no guarantee of future results. The strategy has not been in existence for 10 years, so actual returns for a 10 year period could be lower or higher from the estimates provided. It should not be assumed that clients accounts invested in this strategy will be profitable, or equal the results reflected. Hypothetical returns do not represent actual returns and should not be interpreted as an indication of such. One of the limitations of hypothetical results is that they are generally prepared with the benefit of hindsight and do not take into account the material market factors that may have impacted the adviser’s decision making process. The results shown are net of advisory fees and transaction costs, and reflect the reinvestment of dividends and other account earnings.

All investments involve risk, including loss of principal invested. Past performance does not guarantee future performance. Individual client accounts may vary. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Please refer to the "Disclosure" link below for additional information.