April 20, 2018
Whitepapers and Publications
Tax Efficiency and Dynamic Asset Allocation: Can We Have Our Cake and Eat It Too?
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We are frequently asked about the tax efficiency of our dynamic value-and-momentum investment approach. The concern is often that with estimated turnover of 50% – 100% per year, returns might be less tax-efficient than a simple static, buy-and-hold type of approach, which is generally recognized as the gold-standard of tax-efficient investing. As we’ll explain below, we believe our dynamic approach is expected to be, and has been, as tax-efficient as a static one.
In this note, we will:
- describe the historical tax-efficiency of our approach, as experienced by an actual investor for the past six years. In the Appendix, we show simulated results for the past 11 years, and
- explain why we expect to continue to deliver tax-efficiency in US taxable portfolios, particularly through the inherently favorable tax characteristics of momentum-induced rebalancing and from the account-by-account, tax-aware portfolio-rebalancing tools we’ve developed in-house.
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