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White Paper
Portable Alpha: Still A Great Solution For Improving Return Outcomes
July 30, 2024
In the face of lower-than-average expected returns for equities, some investors may be considering adding active management to their equity allocations. However, the evidence supporting active long-only equities has long been underwhelming. We review an alternative approach – portable alpha.
Journal Article
Levering Up to Do Good: Direct Long-Short Investing and Charitable Giving
April 23, 2024
We use historical strategy simulations to evaluate the advantages of donating appreciated stock in the context of tax-aware long-short factor strategies. We find long-short strategies exhibit several advantages over long-only investments.
Journal Article
Loss Harvesting or Gain Deferral? A Surprising Source of Tax Benefits of Tax-Aware Long-Short Strategies
Summer 2024
We explore the mechanism for how tax-aware long-short factor strategies, within their first three years since inception, can realize cumulative net capital losses exceeding 100% of initially invested capital, all while generating a significant pre-tax alpha – a result shown in previous research. Surprisingly, we find in these strategies that net capital losses arise not from an increased realization of capital losses but rather from the deferral of capital gains, especially short-term gains on long positions.
Journal Article
Beyond Direct Indexing: Dynamic Direct Long-Short Investing
May 3, 2023
On average, net losses realized by direct indexing loss-harvesting strategies taper off within the first few years after their inception, and these strategies also exhibit a high dispersion of net loss outcomes. We show that long-short strategies motivated by factor investing can significantly outperform direct indexing strategies from both a pre-tax and tax perspective.
Journal Article
Tax-Efficient Portfolio Transition: A Tax-Aware Relaxed-Constraint Approach to Switching Equity Managers
March 2, 2020
For a taxable investor with a highly appreciated equity portfolio, replacing the portfolio manager is likely to trigger substantial tax liabilities. We find that a tax-aware relaxed-constraint post-transition strategy significantly outperforms a traditional tax-agnostic long-only strategy in its ability to preserve and grow the investors after-tax wealth over the long term.
White Paper
Understanding the Tax Efficiency of Relaxed-Constraint Equity Strategies
April 5, 2019
A guide to tax-aware relaxed constraint strategies that also tries to enlighten investors on the nuances around tax benefits by comparing different tax-aware strategies with an equity beta of one.
Journal Article
The Tax Benefits of Relaxing the Long-Only Constraint: Do They Come from Character or Deferral?
October 15, 2018
Are there tax benefits from relaxation of the long-only constraint? If so, what are the sources? To answer these questions, we decompose the total tax benefit (or liability) of a strategy into two components.
White Paper
Understanding Relaxed Constraint Equity Strategies
February 3, 2017
In this paper, we discuss how Relaxed Constraint (RC) strategies work, some common misconceptions about the strategy especially relative to Long/Short equity strategies, and considerations in evaluating RC managers.
Alternative Thinking
Relaxed-Constraint Portfolios
2Q 2016
Active equity investors may increase expected portfolio returns by relaxing the long-only constraint. The investment community has largely turned away from strategies that short bad stocks, but we find that they may want to take a renewed look.