DIRECT INDEXING Tax Management Update – Midyear 2023

Despite strong equity market returns, actively managed equity and direct index strategies were still able to find tax loss harvesting opportunities.

With three consecutive quarters of positive market returns, loss harvesting opportunities were a bit harder to find, especially for more mature accounts. Actively managed equity strategies continued to see a decent amount of harvesting, but less than we saw last year.
~ Curt Overway, CFA®
Co-Head, Natixis Investment Managers Solutions

Markets continued to rise through the second quarter, driven mostly by a handful of growth and technology-oriented stocks. In Washington, the debt limit crisis was resolved (or at least postponed) without any meaningful changes to the tax code. Storm clouds continue to build on the horizon, however, as we get closer to 2025 when the personal income tax rate reductions from the Tax Cuts and Jobs Act (TCJA) expire and as new candidates enter the presidential race.

Cruising to Gains
The three best-performing stocks during the quarter were all cruise lines (Carnival +86%, Norwegian Cruise Lines +62%, and Royal Caribbean +59%), but as these were all small weights in the S&P 500® Index, they had minimal impact on its overall return. More significant was Nvidia’s 52% increase in Q2 (on top of a 90% increase in Q1). Strong returns from other large index names like Apple, Microsoft, Amazon, Meta, Tesla and Alphabet were also powerful drivers of the overall index return.

S&P 500® Movers: Winners, Losers and Total Return by Calendar Year and Q1 2023 S&P 500<sup>®</sup> Movers: Winners, Losers and Total Return by Calendar Year and Q1 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.

Many Happy Returns
Most asset classes generated positive returns for the year to date as the trends of the first quarter carried over. Large-cap outperformed small-cap, growth continued to outperform value, and international stocks lagged US stocks. Fixed income, as measured by the Bloomberg US Aggregate Bond index, pulled back slightly during the quarter but remains in positive territory for the year to date.

Year-to-Date Returns for Select Indexes (1/1/23–6/30/23)  Year-to-Date Returns for Select Indexes (1/1/23–6/30/23)
Source: Factset
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 Q2 2023.


Tax Management Update Q2 2023

Read Full Update

Tax-Efficient Investing in Separately Managed Accounts (SMAs)

Direct Indexing SMAs can help address key issues facing tax-sensitive investors. All accounts are actively managed to optimize tax loss harvesting while providing beta exposure to an index. Our tax-managed SMAs include:

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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.