Harvesting Tax Losses – Even When Markets Rise

By Curt Overway, CFA®

Even when the market is up, there are always some stocks that go down, creating tax loss harvesting opportunities. This is especially true when positive returns are driven by only a handful of stocks.
~ Curt Overway, CFA®
Co-Head, Natixis Investment Managers Solutions

January saw a strong start to the year in the equity markets, but the rally fizzled in February and there was more turbulence in March with a series of bank crises. Even so, the markets rebounded overall in March to end the quarter in positive territory. Yet despite the overall rise, the S&P 500® Index constituents were split almost evenly between winners and losers. About 56% of stocks were up for the quarter while 44% were down.

S&P 500® Movers: Winners, Losers and Total Return by Calendar Year and Q1 2023 S&P 500® Movers: Winners, Losers and Total Return by Calendar Year and Q1 2023Source: Thomson Reuters, Standard & Poor’s, Natixis Investment Managers Solutions
Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

The range of outcomes for the S&P 500® constituent stocks was also unusually large in the first quarter relative to the last couple of years. On the positive side, several stocks with relatively large weightings in the index had very strong quarters. Nvidia, Meta and Tesla were the three best performing stocks in the index, generating returns of 90%, 76% and 68% respectively. On the other end of the spectrum, Signature Bank and Silicon Valley Bank were both down 100% but accounted for relatively small weights in the index.

Quarterly Dispersion of Returns for S&P 500® Stocks (April 1, 2021 – March 31, 2023) Quarterly Dispersion of Returns for S&P 500® Stocks (April 1, 2021 – March 31, 2023)Source: Thomson Reuters, Standard & Poor’s, Natixis Investment Managers Solutions
Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

To learn more, please read the full Tax Management Update Q1 2023.

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Tax Management Update Q1 2023

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Tax-Efficient Investing in Separately Managed Accounts (SMAs)

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What Is Tax Loss Harvesting?

A portfolio can harvest its losses for tax purposes by selling investments when their current value is less than the price originally paid for the security. These losses can be used to offset other capital gains on an investor’s tax return. If there are excess losses, they can be used to offset up to $3,000 in ordinary income – or be banked for use in future years.

A tax liability is the total amount of tax debt owed by an individual, corporation or other entity to a taxing authority.

Capital gain is a rise in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price.

CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.

S&P 500® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

Indexes are not investments, do not incur fees and expenses and are not professionally managed. It is not possible to invest directly in an index.

Investing involves risk, including risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

This document may contain references to copyrights, indexes and trademarks that may not be registered in all jurisdictions. Third-party registrations are the property of their respective owners and are not affiliated with Natixis Investment Managers or any of its related or affiliated companies (collectively “Natixis”). Such third-party owners do not sponsor, endorse or participate in the provision of any Natixis services, funds or other financial products.

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