Equities

Understanding a Tax-Aware Defensive Equity Long-Short Strategy

Topics - Equities Factor/Style Investing Defensive Tax Aware

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Understanding a Tax-Aware Defensive Equity Long-Short Strategy

We describe a hypothetical Tax-Aware Defensive Equity Long-Short (TADELS) strategy, including its construction and pre-tax and after-tax performance. TADELS closely replicates the pre-tax performance of a similar hypothetical tax-agnostic strategy and has the potential to achieve a meaningful tax benefit for a taxable investor. TADELS tax benefit remains even when accounting for liquidation taxes. We show that TADELS is attractive in both up- and down-market periods and can diversify typical hedge fund allocations. Moreover, TADELS tax benefit has the potential to make an investor’s entire portfolio more tax-efficient.

The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.

 

This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

 

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