Tax-Aware Long/Short
Proprietary long/short equity strategies that seek better after-tax returns.
The Strategy
What is Tax-Aware Investing?
Our tax-aware long/short strategies are a variation of our existing quantitative strategies which add "tax impact" as a variable in our optimization process. The net effect is a strategy that may maintain investment exposure, add diversification and potential alpha, and generate meaningful tax benefits.
The strategies have the potential to overcome the limitations of conventional tax loss harvesting and direct indexing by investing both long and short while also seeking additional alpha, greater diversification, and lower portfolio volatility.
For taxable U.S. investors, tax-aware long/short strategies have the potential to significantly enhance long-term after-tax wealth.
Mechanics
Portfolio Structure
Tax-Aware Long/Short adds systematic long and short equity extensions, based on our proprietary forecasts of expected returns, to a client's existing portfolio without requiring the initial liquidation of the portfolio.
Extensions to Your Portfolio
The strategy operates alongside existing holdings (or cash). Appreciated positions initially remain in place and there is no forced realization of embedded capital gains.
Long Leg
Long positions are selected by NinePointTwo's internal quantitative models, signals, and factor research. Position sizing is calibrated to maintain appropriate market exposure across the combined portfolio.
Short Leg
The short book draws on the same process, identifying securities NinePointTwo's models expect to underperform. Its sizing is calibrated to offset the long leg's exposure, keeping the combined portfolio market-neutral.
Dynamic Calibration
The strategy may be dynamically adjusted to reflect each client's specific needs, with the goal of maximizing the investor's after-tax returns.
Structural Advantages
Tax-Aware Long/Short vs. Conventional Tax Harvesting
Alpha Overlay
Our tax-aware strategies add a return stream with low correlation to your portfolio, which may enhance expected return and diversification. We use similar expected return models from our unconstrained long/short equity strategies for our tax-aware implementations.
Market-Direction Independence
The strategy is constructed to present potential harvesting opportunities in both rising and declining markets. This is a structural property not available to long-only portfolios, which generally require market declines to surface harvestable positions.
Non-Disruptive Implementation
Existing holdings are initially preserved in your portfolio. The strategy does not require portfolio restructuring or the realization of embedded gains to implement.
Calibrated to Each Client
Each implementation of our tax-aware long/short strategy is unique to you. We specifically tune the strategy based on your risk tolerance, investment goals, and time horizon.
Why NinePointTwo
Managed Directly by the Firm
Our tax-aware strategies are proprietary and managed in-house by NinePointTwo Capital. They draw on the same quantitative long/short infrastructure that underpins NinePointTwo's Alternatives division, applied here with a specific focus on systematic tax efficiency and client-level customization.
Each engagement is tailored to the client's portfolio composition, tax circumstances, and investment objectives. NinePointTwo works directly with clients to design, calibrate, and adjust the strategy over time, with no intermediary layers.
In-House Expertise
Built on NinePointTwo's quantitative long/short expertise.
Fully Bespoke
Designed around each client's specific situation and needs.
Direct Access
Managed directly by NinePointTwo with no intermediary fees or delegation.
Who It's For
Designed for Taxable U.S. Investors
Tax-aware investing is most relevant for taxable U.S. investors with the goal of potentially improving their after-tax wealth outcomes.
- Investors seeking to add alpha to their portfolios
- Owners of highly appreciated portfolios in need of tax-efficient diversification
- Investors seeking to generate tax benefits from existing assets to enhance after-tax wealth
- Investors with the goal of reducing their equity market exposure/risk
- Individuals and family offices seeking to enhance charitable giving capabilities
FAQ
Common Questions
What is the goal of these strategies?
The goal of our tax-aware long/short strategies is to offer suitable taxable U.S. investors direct access to our quantitative strategies in a tax-efficient manner. The strategies have the potential to add additional alpha to portfolios and improve diversification characteristics.
Can I have a profitable portfolio and still generate tax losses?
Yes. The portfolio can appreciate in value while simultaneously generating realized losses on specific positions. Losses are a tax construct tied to individual transactions, not a reflection of overall portfolio performance.
What types of capital gain events could this strategy help with?
Losses are generated as a byproduct of the investment process and are not tied to any specific event. They may be applied against capital gains from any source, including real estate transactions, business sales, carried interest, and more.
Isn't this just deferring a tax bill I'll eventually have to pay?
Yes, however a portfolio that defers taxes compounds on a larger base each year. Over long time horizons, that compounding advantage may generate significantly more after-tax wealth than a tax-inefficient portfolio, even after paying all deferred taxes at liquidation.
Do I need to start with an appreciated stock portfolio?
No. The strategy works with cash or any existing portfolio.
How is this different from traditional tax-loss harvesting?
Traditional tax-loss harvesting captures losses when holdings decline. Tax-Aware Long/Short holds both long and short positions, so it may harvest losses in both rising and falling markets.
Is there a minimum account size?
Yes. Please contact us directly to discuss whether the strategy is appropriate for your situation.
Investing involves substantial risk, including the possible loss of principal. Tax-aware long/short strategies involve unique risks and may not be suitable for all investors. The effectiveness of tax management strategies depends on individual taxpayer circumstances and may vary. Past performance is not indicative of future results. See our Disclosures page for additional important information.
Contact
Is Tax-Aware Long/Short Right for You?
We work with a select number of clients on a direct basis. If you are interested in learning more, we welcome a conversation to explore whether Tax-Aware Long/Short may be a suitable fit for you.