A better way to manage taxes


It’s tax season and time for investors to take a hard look at their portfolio and figure out what they owe to Uncle Sam.

Investment advisers typically advise their clients to take advantage of tax-loss harvesting strategies, in which investors sell securities that have lost value to offset the tax liabilities from capital gains on winners.

 

Taxes

 

Smarter Way

It can be a complicated and time-consuming process.

Yet what if there were a way to automatically identify stocks with unrealized investment losses?

That’s where the Covestor Tax Managed Large Cap Portfolio comes in.

 

150 Positions

This smart beta strategy is designed to systematically deliver return and risk characteristics of large stocks within the US equity market while potentially reducing the investor’s overall tax liability.

The Tax Managed Large Cap Portfolio will target an allocation of 150 long positions.  

The initial allocation is based on capitalization weight where the security universe consists of the largest stocks within the US equity market.

 

Auto-rebalancing

Every quarter, the portfolio is rebalanced with the objective to harvest unrealized investment losses while trying to maintain the target capitalization weighting.

During quarterly rebalancings, Covestor sells stocks with unrealized investment losses and replaces them with stocks having similar characteristics (e.g., market capitalization, industry, valuation).

On average, these replacement stocks have similar expected risk and return characteristics as the stocks being replaced but there can be no assurance that the replacement stocks will perform the same or similarly.

Tax losses incurred in this portfolio could be potentially used by investors to offset other gains and income depending on their unique circumstances.

The portfolio is implemented using a rules-based approach and offered at a relatively low cost.

 

Powerful Trend

Smart beta investment strategies are one of the most powerful trends in investing with assets under management now topping $500 billion.

Smart beta ETFs are carefully constructed indexes that rank stocks by traits other than their market value, the standard methodology employed by traditional benchmarks, such as the Standard & Poor’s 500.

The Covestor Smart Beta portfolios are calibrated for specific stock features and performance metrics designed to deliver a better risk and return trade-off.

Some reasons to take a look at Covestor Smart Beta portfolios:

Low Cost: With an 8 basis point management fee, Covestor Smart Beta portfolios are competitive with existing products in the marketplace.

Low Minimums: Portfolios have low investment minimums of just $5,000 through use of fractional shares.

Factor Tilts: These portfolios are designed for exposure to desirable stock characteristics, or factors, such as robust growth, valuation, quality, and dividends that have been backtested. Portfolios are also well diversified across sectors.

Rules-Based: The Covestor Smart Beta product has filters to screen out undesirable stocks and a repeatable rules-based framework to determine position allocations.

Auto-Rebalancing: Portfolios are rebalanced quarterly; stocks sold are replaced by new ones with more attractive characteristics.

Transparency: Investors have immediate, online access to information on holdings, trades and performance.

Interested in finding out more? You can learn more about Covestor, or try our services with a free trial account.

Photo Credit: CafeCredit.com via Flickr Creative Commons

Disclaimer: Covestor’s Smart Beta Portfolios are not Exchange-Traded Funds or mutual funds but are portfolios made up of individual stock holdings. These portfolios mainly invest in stocks and may not be suitable for all investors. You may lose all or part of investments in these portfolios, and their past performance is no guarantee of future results. You may find additional information on the risks, conflicts of interest, applicable brokerage commissions, fractional shares, and limitations on investments and divestments associated with these portfolios (along with Covestor’s full disclosures) on the Forms and Agreements page at ibkram.com. Covestor Ltd. is an investment advisor registered with the Securities and Exchange Commission (“SEC”). Registration does not imply a certain level of skill or training. Brokerage services are provided to Covestor clients by Interactive Brokers LLC, an SEC-registered broker-dealer and member NYSE/FINRA/SIPC and a Covestor affiliate.

 

Covestor does not provide tax advice and does not represent that investing in the Covestor Tax Managed Large Cap Portfolios will result in any particular tax consequences for any clients.  Clients should consult their personal tax advisers regarding the tax consequences of investing in this portfolio, based on their particular circumstances.  Clients’ ability to reduce their tax liability through investments in this portfolio depends on their overall tax and investment profile. Covestor does not represent or guarantee that the performance of the stocks selected to replace stocks that have experienced capital losses during quarterly rebalancings will be the same or similar to that of the initial holdings despite their similar expected risk and return characteristics. That performance could be better or worse than the performance of the securities that Covestor sells for tax loss harvesting purposes. You may find disclosures related to investments in this portfolio here.  You can find more information about this portfolio and using a tax-loss harvesting strategy here.

Author profile

IB Asset Management
IB Asset Management
IB Asset Management is a pioneer in online investing. IB Asset Management offers a variety of portfolios, including the Smart Beta portfolios, which are managed by IB Asset Management's Chief Investment Officer and Investment Management team. The “Smart Beta” approach to portfolio construction is grounded in academic research. The goal is to achieve an alternative risk-return profile which is more attractive than a simple capitalization-weighted index such as the S&P 500. IB Asset Management Smart Beta portfolios are designed to provide systematic exposure to a fundamental factor or combination of factors. Portfolios are constructed using a rules-based approach and offered at a relatively low cost.