Direct indexing is an increasingly popular separately managed account (SMA) strategy. It allows advisors to provide their clients with the potential for improved tax management and customized portfolios. PGIM Custom Harvest believes that actively harvesting tax losses presents investors with the opportunity to seek enhanced after-tax returns. Harvested tax losses also can be put to work efficiently to better align portfolios with clients’ needs, whether that entails helping unwind highly appreciated or concentrated positions, de-risking portfolios, or planning for future taxable events.
Learning Objective: Direct indexing can help advisors build a better business by allowing their clients to seek enhanced after-tax portfolio outcomes. Most direct indexers use individual securities to harvest losses. The PGIM Custom Harvest approach is differentiated in that we use ETFs. Hear how our approach aims to provide stronger after-tax returns, greater tax-loss capture, and a simplified client experience.
Key Takeaways:
We seek to deliver “tax alpha” by harvesting losses – swapping an ETF position with a similar ETF to maintain exposure to the applicable market sector.
Direct indexing seeks to provide investors with a risk profile and return that are aligned with those of a broad market index and enhanced after-tax returns through regular tax loss harvesting.
Owning a limited number of ETFs versus hundreds of individual stocks can provide the opportunity for greater tax alpha and a simpler client experience.
Direct indexing can provide greater control than passive index investing by allowing for customization.
Speaker:
Robert HolderithHead of PGIM Custom HarvestPGIM Custom Harvest
Robert Holderith is the head of PGIM Custom Harvest (formerly known as Green Harvest Asset Management).
Experience. Robert joined PGIM Investments in December 2021 and founded Green Harvest in 2017. He was previously president and founder of Emerging Global Advisors, LLC (EGA), the advisor to the EGShares family of ETFs, where he was responsible for all aspects of the formation of the firm, including research, portfolio management, product development, index conception and design, technology infrastructure, and sales. Robert has been implementing, structuring, and developing ETFs and related strategies since 1999.
PGIM Custom Harvest’s direct indexing strategies involve risks. Investment return and the principal value of portfolio investments will fluctuate so that a client account may have a gain or loss when the portfolio is liquidated. There is no guarantee or assurance that investment objectives will be achieved. PGIM Custom Harvest does not provide tax, legal or accounting advice. Clients are solely responsible for the tax consequences of the transactions in their accounts, and should consult with their tax, legal and accounting advisors before establishing a PGIM Custom Harvest managed account. Although PGIM Custom Harvest does not provide tax, legal or accounting advice, it stands ready to assist clients and their advisors in reviewing the relevant tax rules. The availability of tax alpha through tax loss harvesting is highly dependent upon the initial date and time of investments as well as market direction and security volatility during the investment period.
This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.
