Tax Aware
March 7, 2024
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Joseph Liberman
Nathan Sosner
We illustrate how combining VPFs (variable prepaid forwards) with tax-aware strategies can help diversify low-basis stock and thereby improve after-tax wealth accumulation. Long-run after-tax wealth outcomes are significantly better when a VPF is combined with tax-aware long-short factor strategies rather than with other alternatives, such as a direct-indexing strategy or a market index fund.
Machine Learning
March 1, 2024
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Bryan T. Kelly
Semyon Malamud
Kangying Zhou
Contrary to conventional wisdom, we theoretically prove that simple models severely understate return predictability compared to “complex” models in which the number of parameters exceeds the number of observations. We empirically document the virtue of complexity in U.S. equity market return prediction. Our findings establish the rationale for modeling expected returns through machine learning.
Tax Aware
March 1, 2024
There is a range of solutions aimed at reducing the risk of concentrated stock tax-efficiently: completion portfolios, exchange funds, charitable giving, just to name a few. But for some investors, Variable Prepaid Forwards (VPFs ) are a favorite. It’s not hard to see why.
Alternative Investing
February 6, 2024
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Michele L. Aghassi
Chris Doheny
Charles Fattouche
Erik Wong
We analyze the historical macroeconomic sensitivity of traditional asset classes and major hedge fund strategies. We show that the average hedge fund is unlikely to provide meaningful diversification during periods of macro uncertainty, which are also typically difficult for traditional assets. However, long/short low-risk strategies have tended to exhibit low macro sensitivity.
Tax Aware
February 6, 2024
Our previous post showed the power of deferral for building wealth, but one key assumption in that analysis was that tax rates remain constant. In this post, we discuss whether gain deferral is still a good idea if you think tax rates might be higher in the future.
Tax Aware
February 1, 2024
We find that strategies that help defer gains can be highly beneficial, irrespective of the investment horizon and especially over the long term.
Multi-Strategy
January 26, 2024
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Portfolio Solutions Group
In this short piece, we review the case for multi-strategy alternatives, explaining why liquid, diversifying alternative strategies may have a decisive role to play in the tougher investment environment ahead.
Asset Allocation
January 16, 2024
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Portfolio Solutions Group
We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also include a section on estimating expected returns and risk for private credit, as well as a feature on the key decisions that underpin any capital market assumptions framework.
Tax Aware
December 13, 2023
We discuss how inflation and taxes are linked, highlighting the value of tax efficiency when inflation is a feature of the macroeconomic environment.
December 5, 2023
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Portfolio Solutions Group
Investors are looking for resilient sources of return in the face of mounting headwinds for equity markets. Long/short and market-neutral equity strategies deserve consideration. We review the case for allocating to long/short equity and address several key choices faced by investors and by managers.