What You Need to Know

Taxes matter to a bond investor’s bottom line. That’s why we’ve brought a digital, high-speed solution to fixed-income active tax management. By continually optimizing separately managed accounts to identify opportunities to harvest losses and by efficiently reinvesting the proceeds in tax-favorable opportunities, automated tax management has the potential to add more than 90 basis points to after-tax returns in some years, according to our in-depth analysis.

Tax alpha, 2021, in initial investment year

with systematic tax optimization

Cumulative tax alpha, 2018–2021,

with systematic tax optimization

Cumulative advantage, 2018–2021,

of continual, digital tax-loss harvesting versus December-only, manual harvesting

Today’s investors increasingly demand active tax management of their separately managed accounts (SMAs). And they should: Taxes matter to an investor’s bottom line. Our research shows that technology-driven, systematic tax optimization can help minimize an investor’s tax burden and materially boost after-tax returns.

Unfortunately, few fixed-income managers are up to the challenge. While many equity solutions already consider automated tax-loss harvesting essential, the bond manager who employs tech-driven tax optimization is a rare breed. The vast majority of bond managers provide only limited, manual and unsystematic tax management—and often only in the last months of the year. Others provide no tax management at all. And that leaves significant after-tax dollars on the table.

orange border on topOur research shows that fixed-income SMAs employing systematic tax optimization can realize meaningful tax alpha.orange border on bottom

That’s why we’ve developed a high-performance digital engine for the active tax management of bond portfolios. AB’s proprietary technology, AbbieOptimizer, digitizes the municipal-bond portfolio construction process and enables a tax-loss harvesting strategy through sophisticated optimization, pricing, liquidity and execution tools.

By continually optimizing accounts to identify opportunities to harvest losses and by instantly reinvesting the proceeds in tax-favorable opportunities, automated tax management maximizes after-tax results. And that’s what all investors deserve from their fixed-income managers.

Past performance, historical and current analyses, and expectations do not guarantee future results.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.

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