This year’s selloff in stocks and bonds has made 2022 a challenging year for many investors. The silver lining, however, could be the opportunity to sell funds with losses to offset capital gains elsewhere. For investors in actively managed mutual funds, the prospect of capital gains distributions could increase the importance of exiting positions with losses. Capital gains distributions may be more likely when mutual funds experience outflows—and mutual funds are on pace for their largest-ever total net outflows in 2022.*
Harvesting Losses with a Tax Swap Strategy
A tax swap is a loss harvesting strategy utilized in taxable accounts. It involves selling a fund that has experienced market losses and buying a fund with similar, but not identical, investment characteristics. By making this swap, a capital loss can be realized. That loss may then be used to offset capital gains realized in other funds, and potentially reduce an investor’s tax liability. To help identify opportunities for loss harvesting, we have analyzed several market segments that have posted losses so far this year. Our analysis includes all U.S.-listed mutual funds and ETFs within the specified categories.
*Source: Investment Company Institute website - "Summary: Long-Term Mutual Fund Net New Cash Flow". November 9, 2022.
An Opportunity to Reposition Portfolios
The year-end may also be an opportunity to revisit investment strategies and prepare portfolios for the year ahead.
Sources: Morningstar, ProShares (1/1/22 – 10/31/22). All categories are based on Morningstar categorizations. The Technology Theme category is made up of mutual funds and ETFs that “target the disruptive growth potential of technological change” as identified in Morningstar’s global thematic funds landscape report. Index performance returns are for illustrative purposes only, and do not reflect any management fees, transaction costs or expenses. Performance data for ProShares ETFs current to the most recent month-end may be obtained here.
S&P 500 Dividend Aristocrats ETF
Seeks investment results, before fees and expenses, that track the performance of the S&P 500® Dividend Aristocrats® Index.
S&P MidCap 400 Dividend Aristocrats ETF
Seeks investment results, before fees and expenses, that track the performance of the S&P MidCap 400® Dividend Aristocrats® Index.
Russell 2000 Dividend Growers ETF
Seeks investment results, before fees and expenses, that track the performance of the Russell 2000® Dividend Growth Index.
DJ Brookfield Global Infrastructure ETF
TOLZ focuses exclusively on pure-play companies—the owners and operators of infrastructure assets such as toll roads, airports and cell towers.
MSCI Transformational Changes ETF
ANEW uses a rules-based approach to invest in companies that may benefit from lasting transformational changes—opportunities that span sectors and industries and break free of traditional style boxes.
Investment Grade—Interest Rate Hedged
Seeks investment results, before fees and expenses, that track the performance of the FTSE Corporate Investment Grade (Treasury Rate-Hedged) Index.
High Yield—Interest Rate Hedged
Seeks investment results, before fees and expenses, that track the performance of the FTSE High Yield (Treasury Rate-Hedged) Index.