Tax management

Tax management update – Q2 2024

July 24, 2024 - 5 min read

SVP, Client Portfolio Manager, Integrated Portfolio Implementation^® – Natixis Investment Managers Solutions

Dispersion of returns across individual companies increased during the period, with approximately 41% of S&P 500^® companies falling in value since the beginning of the year.

– Peter Klos, CFA^®, Client Portfolio Manager, Natixis Investment Managers Solutions

Equity markets, for the most part, continued to climb higher in 2024, with large-cap stocks remaining in the lead during the second quarter. The strong performance of large-cap stocks was driven by several factors, including corporate earnings and a stabilization in both interest rates and inflation. Speculation around Fed rate cuts and interest rates more generally remains a key variable.

Election cycle tax talk

The US presidential election will become an increasingly important factor for both markets and potential tax changes. President Joe Biden and former President Donald Trump have begun to deliver some clarity around their priorities for tax policy next year. Earlier this year, Biden set out his budget request, which detailed his agenda. More recently, Trump suggested that he would eliminate taxes for tipped wages.

However, before the November elections, Congress will be in session for a very limited number of days, and not much activity is expected, particularly on major issues such as taxes. It is possible the Smith-Wyden bill, which would extend the Child Tax Credit (CTC) and research and development credits for businesses, may get attention in 2024, but it is also dependent on presidential and congressional election outcomes.

Dispersion in stock returns increased

The number of stocks in the S&P 500^® posting positive returns came down somewhat during Q2, ending the first half of 2024 at approximately 59%. Dispersion has definitely picked up, as a relatively small number of mega-cap stocks are once again driving overall index performance. NVIDIA remains the strongest mega-cap performer, closing the first half up just under 150%. A number of other mega-cap stocks, including Microsoft (+19%), Amazon (+27%) and Meta (+42%), have also outpaced the broader market. Apple is the only notable laggard amount the mega-cap names, but its stock was still up almost 10% in the first half of 2024.

Annual total return and max drawdown for the S&P 500^® by calendar year

Source: FactSet, Natixis Investment Managers Solutions

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.

Loss harvesting opportunities in Q2

Q2 2024 presented some opportunities from a loss harvesting perspective. Although the broad-based S&P 500^® continues to increase in value, there were bigger differences in performance between growth and value. Dispersion of returns across individual companies increased during the period, with approximately 41% of S&P 500^® companies falling in value since the beginning of the year. This is especially interesting given the reality that the overall index is up over 15% so far this year. This company-specific dispersion (when accessed via a SMA) will still provide some opportunities for harvesting, as clients oftentimes have at least some exposure to underperforming names.

Harvesting opportunities will vary quite a bit based on client-specific events (when the client invested, cash flows, etc.) along with manager changes. However, generally speaking, equity and fixed income portfolios tended to see a modest uptick in harvesting opportunities during Q2.

Tax management update – Q2 2024

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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:

S&P 500^® Strategy (Large Cap)

S&P 400^®Strategy (Mid Cap)

S&P 600^®Strategy (Small Cap)

S&P 1500^® Strategy (All Cap)

S&P Global 500 Strategy (Large Cap)

S&P ADR/International Strategy

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.

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Want more information on tax-managed investment strategies?

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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