Across AB’s suite of municipal bond solutions, we only make a transaction in a tax-loss opportunity if the benefit outweighs the costs after considering all relevant factors:
We compare two opportunities in the Display below. Bond A has a tax benefit of 166 basis points (bps), costs 90 bps to trade and increases excess expected return by 40 bps. The benefit is 206 bps: 166 bps tax benefit plus 40 bps increase in expected return. Subtracting the 90 bps transaction cost would leave the client with a net benefit of 116 bps. The same analysis on Bond B illustrates that the cost to trade completely offsets the benefit of the tax-loss transaction, so we would not choose that tax-loss harvesting opportunity.
Even if selling Bond B produced a net benefit of 10 bps to 20 bps of positive net benefit, we generally wouldn’t view it as an attractive trade, because the net benefit to the end client isn’t big enough. We typically aim to generate at least 100 bps of net benefit before engaging in a transaction. It’s clear from this example that while locking in losses may seem like a sure thing, the size of the loss is just one piece of the puzzle.
For illustrative purposes only. There can be no assurance that any investment objectives will be achieved.
ST: Short-Term, which applies a tax rate of 40.8%
LT: Long-Term, which applies a tax rate of 23.8%
It might seem complex to weigh all these factors when considering tax-loss harvesting opportunities. That’s why AB has leveraged technology to create an active tax-loss harvesting program that enables a consistent, systematic approach to year-round tax management.
This approach can help clients avoid being compelled to realize losses during potentially illiquid and volatile markets. What’s more, we recalibrate our hurdle rates for tax-loss harvesting as yield levels rise and fall (Display).
The information provided is for informational purposes only.
Data represented above is derived from both external providers and AB internal systems.
As of October 31, 2023
Source: Municipal Market Data and AB
An active, tech-driven approach is a key differentiator of AB’s municipal bond separately managed account solutions. It helps us uncover market opportunities in real time, using year-round tax-loss harvesting to transform investments that have lost money into tax winners.
Learn more about AB’s Municipal Bond strategies.
There is no assurance that a separately managed account will achieve its investment objective. Separately managed accounts are subject to market risk. The market values of securities owned will fluctuate so that your investment, when redeemed, may be worth more or less than its original cost.
The information contained herein are from sources believed by AllianceBernstein L.P. (“AB”) to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein. AB does not provide tax, legal or accounting advice. In considering this material, please discuss your individual circumstances with professionals in those areas before making any decisions.
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