Could tax-aware long/short power additional diversification?
How does portfolio design change if tax friction is solved?
Taxable wealth: what I’m reading
Matt Levine: Floor Traders Want Their Seats Back (no dividend ETF)
AQR (2017): Taxes, Shorting, and Active Management
IRS: Rev. Rul. 2003-7 (variable prepaid forwards)
Welch, Quisenberry (2005): Increasing the Tax-Effectiveness of Concentrated Wealth Strategies (variable prepaid forwards)
AQR (2023): Beyond Direct Indexing: Dynamic Direct Long-Short Investing
Cryptocurrency Tax War: Shorting Against the Box
Long/short: “What’s the use case?”
Tax-aware long/short strategies aim for alpha and capital losses. Could they also power additional diversification?
A 150/50 strategy begins with a core portfolio (individual stocks or an index fund in this case) and adds 50% long and 50% short "extensions."
Suppose the 50% extensions wrapped the entire marginable security portfolio.
The capital losses generated by the extensions could offset rebalancing costs, but also capital distributions from tax-inefficient diversifiers.
Managed futures come to mind.
How does taxable portfolio management change if alpha and portable capital losses remove tax as a friction?
How does asset location change if taxable portfolio management changes?
This tax content has a different texture
Tax-free essential reading
Mariners no-hitter through 7, blew 5-0 lead to Yankees. It could be worse. I could be a Rockies fan on pace to break MLB record for losses.
