In an equity market that has mostly moved straight up this year, the logical question is, how have we been realizing losses? Our analysis of potential tax benefit1 may provide the answer.
Recapping the third quarter
Overall, it was another robust quarter, with the S&P 500® Index posting a 5.89% gain. But the rise in the third quarter only tells part of the story, coming on top of two strong quarters to begin 2024—and a market that was up over 20% in 2023. All told, the S&P 500 has climbed 22.08% year to date through September 2024 and 54.17% since the end of 2022.
And bear in mind that the strength so far in 2024 has been across every sector. All but one have posted double-digit gains, and even the lagging energy sector is up 8.36% year to date through September 30.
Finding tax loss harvesting opportunities
When even focusing on the sector level has offered few losses, the potential for tax loss harvesting has been somewhat limited this year. Yet we have also seen periods of elevated volatility, which have provided opportunities to capture losses.
Parametric’s Custom Core portfolio managers used the volatile periods to look for losses on a daily basis and trade portfolios when the market presented opportunities. Our systematic, trigger-based portfolio management approach captured losses in portfolios intra-month to capitalize on market volatility.
As a result, we harvested over $1.2 billion in losses across 134,000 trades during the third quarter, delivering a potential tax benefit of almost $460 million2 to Custom Core investors.
In years like 2023 or 2024, when the market is rapidly rising, the approach to loss harvesting can yield very different results. Calendar-based loss harvesting, which only looks at portfolios on a quarterly or annual basis, for example, may miss almost all the opportunities to capture losses.
Consider the benefits of active tax management
The bottom line
At Parametric, we believe it’s crucial to monitor direct indexing accounts on a regular basis for loss harvesting opportunities. That helps us take advantage of those brief periods of volatility when losses present themselves—all while constantly balancing the potential benefits of loss harvesting opportunities with the risk of the portfolio.
1 The potential tax benefit is calculated by applying the maximum federal rates for short-term and long-term capital gains, which are currently 40.8% and 23.8%, respectively.
2 Source: Parametric, 9/30/2024. The information is provided for illustrative purposes only. Values are aggregated across all equity direct indexing strategies. Only client positions with unverified cost basis were excluded from calculations. Loss calculation is based on the amortized book price minus the sell price, represents historical information and should not be construed as future results. Loss information illustrates the effect to a portfolio and is not representative of, and should not be construed as, performance. There is no assurance that tax loss harvesting will continue in the future. There is no guarantee that any specific account may engage in tax loss harvesting.
Parametric and Morgan Stanley do not provide legal, tax, or accounting advice or services. Clients should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein.
The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.
12.09.2025 | RO 4041894
