Allison Bonds Mazza, CIMA, CPWA, Head of Private and Independent Wealth Management at State Street Global Advisors, joined Julie Cooling, Founder and CEO of RIA Channel, to discuss opportunities for tax loss harvesting in the fourth quarter of 2023.
While investors don’t typically consider fixed-income holdings as a source of opportunities for tax loss harvesting, recent performance means that opportunities may be more abundant this year in fixed-income markets than in equity markets. Through October 2023, this year is on pace to be the third consecutive year of negative fixed-income returns, something that has never happened before. The bond market is in its twenty-eighth month of a bear market, the worst since Jimmy Carter was president.
Over the last three years, the Bloomberg Aggregate Bond Index has declined 15%, its worst-ever return. When considering various sectors of the bond markets, as of October 2023, long-term Treasuries declined 12% year-to-date, with long-term corporates declining 7%. Since the beginning of 2022, those two markets have declined almost 40% and almost 33%, respectively, while high-yield bonds have lost 17% over the same time period.
Given the strong broad equity market performance in 2023, there is less opportunity for tax loss harvesting in equities this year. However, certain stocks, such as value stocks and holdings in the utility and real estate sectors, may present opportunities for tax loss harvesting.
Bonds sees two opportunities for tax loss harvesting. First, this can be used as an opportunity to reposition portfolios. The SPDR® DoubleLine® Total Return Tactical ETF, (TOTL), which provides core fixed income exposure, has experienced $1 billion inflows year-to-date through October 2023. Second, these market developments also allow investors to reduce expenses in their portfolios, as they realize tax losses in underperforming, high-cost, actively managed funds and reinvest the proceeds in lower-cost index ETFs. SSGA has seen strong inflows into the SPDR Portfolio ETFs, with fees as low as two basis points per year.
Resources:
TOTL: SPDR® DoubleLine® Total Return Tactical ETF (ssga.com)
Top Tax-Loss Harvesting Opportunities in Bonds and Sectors (ssga.com)