Tax management

Tax management update – Q4 2024

January 16, 2025 - 5 min read

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

Generally speaking, equity and fixed income portfolios saw an uptick in loss harvesting opportunities in Q4, despite the fact that most portfolios were in nicely positive territory for the full year.

– Peter Klos, CFA^®

Equity markets increased substantially in 2024, with large-cap stocks continuing to outperform during the fourth quarter. Mega-caps once again led the way, with technology stocks in particular finishing the year in significantly positive territory.

Trump tax-policy agenda on fast track

Markets had a swift reaction to the 2024 election results, which saw Republicans sweep the House, Senate, and the White House. Given the party’s full control of DC, incoming President Trump will be looking to quickly enact his tax-policy agenda. Trump has spoken to a number of potential changes including extending the expiring individual and estate tax cuts from the 2017 Tax Cuts and Jobs Act; adjusting the State and Local Tax (SALT) cap; eliminating taxes on Social Security benefits and tipped and overtime wages; lowering the corporate tax rate from 21% to 20% for all companies and to 15% for companies that make products in the US. Trump has suggested that curtailing certain spending and imposing a universal tariff of 10% to 20%, as well as a 60% tariff on imports from China, would help pay for these cuts.

The main question now is whether Republicans will unite on all of these changes or on a select grouping of them, and how long it may take to reach an agreement. Republicans hold a very slim majority in the House, which would allow for the loss of only one or two votes to pass tax legislation. Some Republicans believe passing one big bill that includes tax priorities along with immigration and energy policies would be the easiest route to secure their agenda, while others propose separating tax policy from the other priorities. It is not yet clear which path they will take, but with little margin for error, it may take time to get everyone in the caucus to agree.

Winners and losers

The number of stocks in the S&P 500^® posting positive year-to-date (YTD) returns shifted somewhat during Q4, with approximately 65% of the individual names rising in value over the course of 2024. This number is down somewhat since 9/30, as volatility picked up in the run-up and aftermath of the election. This 65% level lines up very closely with what we saw in 2023, as the majority of names rose in value. Although a good-sized portion of individual stocks rose in value, there are areas of weakness as the market continues to be dominated by technology.

FIGURE 1: 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 future results.

Tax loss harvesting opportunities in Q4

Although the broad-based S&P 500^® continued to increase in value, there was a significant uptick in dispersion across individual large-cap stocks. While mega-cap technology stocks tended to rise, value stocks and smaller-cap stocks tended to have weaker performance. Non-US markets also tended to fall in value; therefore, harvesting within international strategies tended to pick up. Bond markets also fell during the period, leading to potential smaller-sized opportunities within fixed income in Q4.

Tax management update – Q4 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.

The 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.

Natixis Advisors, LLC does not offer tax advice. Clients should always consult with their tax advisor to discuss their personal situation. Use of overlay management and tax management strategies does not guarantee a profit or protect against a loss in an investor’s portfolio.

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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