In our last episode, we discussed the importance of a portfolio's asset allocation, and, how that relates to "Reducing Your Tax Bill". In part two of this episode, we are joined once again by Symmetry's Managing Director of Research and Investments, Philip McDonald, CFA, CAAIA & Glenn Shirley, CAIA, Head of Investor Relations for Quantinno Capital Management, to discuss the methods by which you can "re-charge that tax benefit". If you have any questions or would like more information, reach out to us at https://symmetrypartners.com/contact-us/ You can also find us on Facebook, YouTube, Twitter, and LinkedIn. As always, we remain invested in your goals. Symmetry Partners, LLC, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, excluded or exempted from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. No one should assume that future performance of any specific investment, investment strategy, product or non-investment related content made reference to directly or indirectly in this material will be profitable. As with any investment strategy, there is the possibility of profitability as well as loss. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions.   Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.   00:00:01.800 --> 00:00:07.600 Hello listeners, 1 00:00:07.600 --> 00:00:10.900  welcome back to part two of our conversation on 2 00:00:10.900 --> 00:00:13.500  investing in taxes. Once again, I'm joined by Glenn 3 00:00:13.500 --> 00:00:16.500  Shirley from quantino and Phil McDonald from symmetry. 4 00:00:16.500 --> 00:00:19.100  Thanks gentlemen for joining us again, whether or not the market goes up 5 00:00:19.100 --> 00:00:22.800  or down when you have the long short overlay you have 6 00:00:22.800 --> 00:00:26.700  opportunities to to find losers losses. 7 00:00:26.700 --> 00:00:29.700  If you will to reach hard that tax benefit, 8 00:00:29.700 --> 00:00:32.400  it's some what counterintuitive right we're looking 9 00:00:32.400 --> 00:00:35.300  for Securities that have gone down in 10 00:00:35.300 --> 00:00:38.100  value, but I think the truth of the matter is is that when you 11 00:00:38.100 --> 00:00:41.600  own an ETF that's tracking an index or mutual 12 00:00:41.600 --> 00:00:44.300  fund that's tracking index. The reality is Phil 13 00:00:44.300 --> 00:00:47.600  you do own those losers. You just might not see them right? They're always 14 00:00:47.600 --> 00:00:50.200  that's right. Yeah looking at and that's 15 00:00:50.200 --> 00:00:53.300  a great Point looking at say in S&P 500 or 16 00:00:53.300 --> 00:00:57.300  Russell 1000 ETF. You you see one number, 17 00:00:56.300 --> 00:00:59.300  you know one one price 18 00:00:59.300 --> 00:01:01.500  one return but behind 19 00:01:02.300 --> 00:01:06.100 You're likely going to have dozens and dozens of positions 20 00:01:05.100 --> 00:01:08.200  that throughout the year and at year end 21 00:01:08.200 --> 00:01:11.900  are in or in a lost position. So in 22 00:01:11.900 --> 00:01:14.400  direct indexing, it just kind of breaks down that wrapper and 23 00:01:14.400 --> 00:01:17.700  you hold, you know hundreds of Securities directly. So 24 00:01:17.700 --> 00:01:20.800  you kind of see those a little bit more clearly sure and 25 00:01:20.800 --> 00:01:24.400  we've seen that in recent years right with some of these tech stocks 26 00:01:24.400 --> 00:01:27.400  the Fang stocks if you will Facebook Apple Amazon Netflix Google 27 00:01:27.700 --> 00:01:30.200  Etc. They were driving the returns of the S&P and there 28 00:01:30.200 --> 00:01:33.400  was a vast majority of those securities within the S&P that 29 00:01:33.400 --> 00:01:36.300  were in the red and by unwrapping it you can 30 00:01:36.300 --> 00:01:39.600  take advantage of those you still run into the issue of 31 00:01:39.600 --> 00:01:42.700  the portfolio seizing and what 32 00:01:42.700 --> 00:01:45.400  I mean by that is what we've been talking about having that portfolio 33 00:01:45.400 --> 00:01:48.000  get to a point where you don't have any room to make 34 00:01:48.300 --> 00:01:51.600  any trades without incurring some sort of tax consequence, but I 35 00:01:51.600 --> 00:01:54.900  think that's where the 1330 comes in right Glenn you're 36 00:01:54.900 --> 00:01:57.300  able to apply that strategy on 37 00:01:57.300 --> 00:02:00.700  top of an existing portfolio generate losses in 38 00:02:00.700 --> 00:02:02.200  any Market environment. And so 39 00:02:02.200 --> 00:02:05.100 So I think that that's a really interesting thing Glenn. Can you talk a little bit? 40 00:02:05.100 --> 00:02:08.200  I didn't mean to interrupt you, but could you talk a little bit about what is 41 00:02:08.200 --> 00:02:11.400  what happens with the risk exposure by putting that overlay on 42 00:02:11.400 --> 00:02:14.500  right investor with that 100 dollars 30 long 43 00:02:14.500 --> 00:02:17.100  30 short what what happens to the 44 00:02:17.100 --> 00:02:20.600  risk characters of that particular account? Sure. Yeah great 45 00:02:20.600 --> 00:02:23.300  question Tom. So if you look at if you just 46 00:02:23.300 --> 00:02:26.900  put on a 30% long 30% short 47 00:02:26.900 --> 00:02:29.300  portfolio. And you said what is the risk of 48 00:02:29.300 --> 00:02:32.500  that portfolio in isolation by itself? The answer 49 00:02:32.500 --> 00:02:36.000  to that is about one percent and that 50 00:02:35.100 --> 00:02:38.300  could be there be you know, standard deviation how much it's 51 00:02:38.300 --> 00:02:42.100  going to move around or it could be if you're if you're looking at that benchmarked 52 00:02:41.100 --> 00:02:44.200  to a you know, an index like 53 00:02:44.200 --> 00:02:47.400  the S&P 500 that would be one percent tracking here. So pretty 54 00:02:47.400 --> 00:02:50.500  modest, you know, a lot of active Equity strategies have tracking 55 00:02:50.500 --> 00:02:53.300  air easily of two percent or more. So we're 56 00:02:53.300 --> 00:02:56.300  not adding a lot of of risk just via that long 57 00:02:56.300 --> 00:02:59.500  short extension, but in reality as I mentioned you have 58 00:02:59.500 --> 00:03:01.600  these kind of Legacy accounts that 59 00:03:02.200 --> 00:03:05.700 Some elevated levels of risk that long short extension is 60 00:03:05.700 --> 00:03:08.200  a tool to reduce that risk. So even though 61 00:03:08.200 --> 00:03:11.400  you have a 1% risk in 62 00:03:11.400 --> 00:03:14.300  that long short extension in isolation. If you use that 63 00:03:14.300 --> 00:03:17.400  long short extension efficiently to reduce 64 00:03:17.400 --> 00:03:20.600  the total risk of the portfolio, then oftentimes we 65 00:03:20.600 --> 00:03:23.900  can also we can actually reduce kind of the total tracking 66 00:03:23.900 --> 00:03:26.400  error or risk versus The Benchmark of a 67 00:03:26.400 --> 00:03:29.200  tax less harvesting strategy often we can at least 68 00:03:29.200 --> 00:03:32.400  keep it the same. So when you look at a quantino kind 69 00:03:32.400 --> 00:03:35.900  of 130 30 tax loss harvesting account tracking errors 70 00:03:35.900 --> 00:03:38.400  typically one and a half percent on average 71 00:03:38.400 --> 00:03:41.400  and that's very very similar to what of 72 00:03:41.400 --> 00:03:44.300  what a clients are probably experiencing in their long only text less 73 00:03:44.300 --> 00:03:47.100  harvesting accounts as well. So just to reiterate what you're 74 00:03:47.100 --> 00:03:50.400  saying by applying the the 1330 extension to 75 00:03:50.400 --> 00:03:53.700  a portfolio the clients risk exposures still that 76 00:03:53.700 --> 00:03:56.300  principle investment is what I'm hearing you say, 77 00:03:56.300 --> 00:03:59.400  however, I think what I think a really really strong 78 00:03:59.400 --> 00:04:01.700  point is that it's not necessarily 79 00:04:02.200 --> 00:04:05.900 the risk by putting the overlay but it actually can be a risk mitigator Phil 80 00:04:05.900 --> 00:04:09.200  you and I have run across these many many times where investors 81 00:04:08.200 --> 00:04:11.600  come to us and we look at their existing Holdings 82 00:04:11.600 --> 00:04:14.200  and we're working on a Case right now 83 00:04:14.200 --> 00:04:17.600  where the investor who probably should 84 00:04:17.600 --> 00:04:20.500  have a balanced portfolio between Brawley Diversified 85 00:04:20.500 --> 00:04:21.600  stocks and bonds. 86 00:04:22.200 --> 00:04:25.900 Is stuck in a single stock position that they 87 00:04:25.900 --> 00:04:28.200  can't do anything with because of the 88 00:04:28.200 --> 00:04:31.200  fact that it's it's got such a low cost basis if 89 00:04:31.200 --> 00:04:34.600  they were to sell that security. They would be looking at some significant. 90 00:04:35.400 --> 00:04:38.400 Tax consequences, but only a single 91 00:04:38.400 --> 00:04:41.300  stock is a real risky Endeavor. Oh, no question, 92 00:04:41.300 --> 00:04:41.800  and I think 93 00:04:43.300 --> 00:04:46.400 This is such an incredibly powerful benefit of this 94 00:04:46.400 --> 00:04:49.600  strategy. And I think it it sometimes is you know 95 00:04:49.600 --> 00:04:52.600  mentioned second after the the tax Alpha 96 00:04:52.600 --> 00:04:55.300  and hey, you can keep more of what you earn but this is so 97 00:04:55.300 --> 00:04:57.100  incredibly powerful, you know, thinking of 98 00:04:58.200 --> 00:05:01.300 Really sad examples through time like Enron, you know things went 99 00:05:01.300 --> 00:05:04.400  very bad for people who held most of their company 100 00:05:04.400 --> 00:05:07.200  stock a lot of incentive plans. These 101 00:05:07.200 --> 00:05:10.400  days will give employees options and shares and 102 00:05:10.400 --> 00:05:13.000  all that. So this is an issue or a lot 103 00:05:13.500 --> 00:05:16.700  of investors and I think this solution really is, you know virtuous and 104 00:05:16.700 --> 00:05:19.400  really helping them in their Financial Health and just to 105 00:05:19.400 --> 00:05:22.600  maybe put a finer point on it and at the 106 00:05:22.600 --> 00:05:25.900  risk of being a little repetitive, you know, if you own a 107 00:05:25.900 --> 00:05:29.200  large amount of your, you know, large amount of your financial wealth 108 00:05:28.200 --> 00:05:31.600  is in an oil stock or a 109 00:05:31.600 --> 00:05:32.100  tech stock. 110 00:05:32.700 --> 00:05:35.800 Immediately in putting on the 13030 strategy 111 00:05:35.800 --> 00:05:38.400  the the 30 extension the 112 00:05:38.400 --> 00:05:40.000  30 more long can hold. 113 00:05:40.700 --> 00:05:42.900 Every other industry except that one you hold. 114 00:05:43.500 --> 00:05:46.900 Imagine that diversification and then the short can reduce 115 00:05:46.900 --> 00:05:50.000  that exposure to that one industry. So overnight in 116 00:05:49.500 --> 00:05:52.400  what in in the first, you know 117 00:05:52.400 --> 00:05:55.700  day of transactions you go from hey, I 118 00:05:55.700 --> 00:05:58.800  might end up like Enron or wow. My my 119 00:05:58.800 --> 00:06:01.400  financial wealth is gonna ride up and down with 120 00:06:01.400 --> 00:06:04.900  the price of crude oil or how Google does and 121 00:06:04.900 --> 00:06:07.400  immediately you're getting more 122 00:06:07.400 --> 00:06:10.000  of a diversified Market portfolio. Even if 123 00:06:10.200 --> 00:06:13.900  you're just shooting toward maybe an S&P 500 Index. It's immediately 124 00:06:13.900 --> 00:06:16.100  beneficial Glen. I don't know if you'd add 125 00:06:16.100 --> 00:06:20.400  anything to that but I really find that as you know, powerful benefit 126 00:06:19.400 --> 00:06:22.400  to the end investor. Yeah, the 127 00:06:22.400 --> 00:06:25.900  your correct fell the deals exchange solution that 128 00:06:25.900 --> 00:06:28.300  quantino offers is really a use case 129 00:06:28.300 --> 00:06:31.400  that came about from client feedback. We're fortunate to 130 00:06:31.400 --> 00:06:34.400  work with a lot of family offices. These are very wealthy families that 131 00:06:34.400 --> 00:06:37.500  have concentration in their portfolio. 132 00:06:37.500 --> 00:06:40.300  They built wealth via service to a public company or 133 00:06:40.300 --> 00:06:43.400  investing in a company that went public and eventually 134 00:06:43.400 --> 00:06:46.000 They want to turn the corner from you know, 135 00:06:46.300 --> 00:06:50.600  this this wealth that has been built by that concentration turning 136 00:06:49.600 --> 00:06:52.400  the corner toward wealth preservation and that 137 00:06:52.400 --> 00:06:55.500  means diversification. So how do we do that in a tax efficient manner? 138 00:06:55.500 --> 00:06:58.800  There's exchange funds that we you 139 00:06:58.800 --> 00:07:01.500  know that are really an option for very wealthy families, but 140 00:07:01.500 --> 00:07:05.200  really not for clients at scale. They're multi-million 141 00:07:04.200 --> 00:07:07.200  dollar minimums their private 142 00:07:07.200 --> 00:07:10.500  Fund Solutions and you know, you're vestly 143 00:07:10.500 --> 00:07:13.800  investing in a hedge fund that's gonna take seven years to diversify 144 00:07:13.800 --> 00:07:15.500  and they're very expensive. So we always knew 145 00:07:16.600 --> 00:07:19.800 that if we could use our capabilities to help clients diversify 146 00:07:19.800 --> 00:07:22.100  concentrated positions to be a pretty powerful thing and 147 00:07:22.100 --> 00:07:25.600  that 30 by 30 extensions the the way we do that so, you 148 00:07:25.600 --> 00:07:27.100  know, we put that long short extension on 149 00:07:27.700 --> 00:07:30.300 The extension generates tax benefits along the 150 00:07:30.300 --> 00:07:33.100  way we can use that extension to reduce the risk of 151 00:07:33.100 --> 00:07:36.200  that concentrated position. You're totally right there. And then 152 00:07:36.200 --> 00:07:39.300  over time as we generate those consistent tax benefits 153 00:07:39.300 --> 00:07:42.300  that gives us a mechanism to sell 154 00:07:42.300 --> 00:07:45.900  down that concentrated position, but we're always matching 155 00:07:45.900 --> 00:07:48.300  the tax benefits that we generate with the 156 00:07:48.300 --> 00:07:51.100  capital gains that we are realizing by selling down that 157 00:07:51.100 --> 00:07:51.400  position. 158 00:07:52.400 --> 00:07:55.700 And then once we sell we're rebalancing into a 159 00:07:55.700 --> 00:07:58.300  diversified index of the advisor and the client's Choice 160 00:07:58.300 --> 00:08:01.900  could be S&P 500. It could be Global stocks really whatever 161 00:08:01.900 --> 00:08:04.700  the asset allocation decision ends up 162 00:08:04.700 --> 00:08:07.400  being so yeah a typical even low basis very 163 00:08:07.400 --> 00:08:10.500  low basis position 20% cost basis. We 164 00:08:10.500 --> 00:08:13.400  can help diversify in a tax efficient manner 165 00:08:13.400 --> 00:08:15.100  in around seven years. 166 00:08:16.300 --> 00:08:19.100 That's very cool. It's a very clever strategy. I mean 167 00:08:19.100 --> 00:08:23.200  we're talking about tax benefits, but what we're really talking about is 168 00:08:22.200 --> 00:08:24.500  transitioning a 169 00:08:25.300 --> 00:08:28.900 Well, I would consider a concentrate risky portfolio very 170 00:08:28.900 --> 00:08:31.200  risky at times into something that 171 00:08:31.200 --> 00:08:34.700  is more suitable for that investor more Diversified but 172 00:08:34.700 --> 00:08:37.600  doing it in a way that they don't 173 00:08:37.600 --> 00:08:40.900  have to feel the the pain of unwinding 174 00:08:40.900 --> 00:08:44.000  those positions that might have some very significant embedded 175 00:08:43.300 --> 00:08:46.600  gains. You know it our 176 00:08:46.600 --> 00:08:47.500  industry we get 177 00:08:49.100 --> 00:08:52.000 picked on I guess for being very jargony right a lot 178 00:08:52.600 --> 00:08:55.100  of jargon and terms that a lot of folks that 179 00:08:55.100 --> 00:08:58.400  are not in this industry on a daily basis and 180 00:08:58.400 --> 00:09:02.000  we throw out the term tax Alpha quite a bit and 181 00:09:01.300 --> 00:09:04.300  I'll throw this question out to both the a Phil and Glenn. 182 00:09:04.300 --> 00:09:07.700  Can we just Define what tax Alpha is 183 00:09:07.700 --> 00:09:10.400  and then can you quantify it? Sure. Yeah. Yeah 184 00:09:10.400 --> 00:09:13.300  to us. I think of tax Alpha is 185 00:09:13.300 --> 00:09:13.900  tax savings. 186 00:09:14.900 --> 00:09:18.400 So, you know if if quantino generates 187 00:09:17.400 --> 00:09:20.900  a dollar of short-term 188 00:09:20.900 --> 00:09:22.200  capital loss. 189 00:09:22.700 --> 00:09:25.700 Then if you have a short-term gain 190 00:09:25.700 --> 00:09:28.500  a dollar of short-term gains, that saves you 191 00:09:28.500 --> 00:09:32.200  40.8 percent. So I've saved the client 40 cents 192 00:09:31.200 --> 00:09:34.900  41 cents in tax. If 193 00:09:34.900 --> 00:09:37.400  I'm using that short-term law stuff set long 194 00:09:37.400 --> 00:09:41.300  term gains that that long-term gains rate essentially 23% 195 00:09:40.300 --> 00:09:43.400  at the federal level. So I've 196 00:09:43.400 --> 00:09:46.800  saved clients, you know, 24 cents 197 00:09:46.800 --> 00:09:49.000  on that dollar of a capital loss. 198 00:09:49.900 --> 00:09:52.700 So if I can consistently generate Capital losses 199 00:09:52.700 --> 00:09:55.700  if quantino can consistently do that. We're letting 200 00:09:55.700 --> 00:09:58.500  clients offset the capital gains 201 00:09:58.500 --> 00:09:59.500  that they have in their portfolio. 202 00:10:00.100 --> 00:10:03.600 and they're just keeping more of the return from those capital gains 203 00:10:03.600 --> 00:10:06.200  year to year and those capital gains from can come from a lot of different, 204 00:10:06.200 --> 00:10:08.500  you know Avenues it could be 205 00:10:09.300 --> 00:10:12.300 Capital gains distributions from Mutual Funds. It could 206 00:10:12.300 --> 00:10:15.700  be long-term gains realized from rebalancing your portfolio 207 00:10:15.200 --> 00:10:19.000  Etc. So to me tax Alpha 208 00:10:18.700 --> 00:10:21.200  is keeping more of that return in the 209 00:10:21.200 --> 00:10:24.400  client's pocket paying less in capital gains and using those 210 00:10:24.400 --> 00:10:27.800  Capital losses as a vehicle to do that great. 211 00:10:27.800 --> 00:10:30.500  That's a that's a very eloquent definition of 212 00:10:30.500 --> 00:10:33.300  taxol. Do you care to add that? Yeah. I I like that 213 00:10:33.300 --> 00:10:36.100  definition as well. Yeah. One thing I'd say is 214 00:10:36.100 --> 00:10:40.000  that I think there's again pretty broad agreement 215 00:10:39.300 --> 00:10:42.700  that long only tax loss harvesting 216 00:10:42.700 --> 00:10:45.300  does have a benefit to the portfolio 217 00:10:45.300 --> 00:10:48.500  and it might be, you know one to two percent maybe maybe 218 00:10:48.500 --> 00:10:51.500  two percent on you know, really good implementations call 219 00:10:51.500 --> 00:10:54.400  it one percent. But again that has a 220 00:10:54.400 --> 00:10:57.600  horizon that's gonna likely track down as your portfolio 221 00:10:57.600 --> 00:11:00.300  ossifies seizes up turns into 222 00:11:00.300 --> 00:11:03.600  our favorite word. No, you know, 223 00:11:03.600 --> 00:11:06.400  nothing with unrealized gains. So, you know, 224 00:11:06.400 --> 00:11:09.100  you're talking 1% dish in 225 00:11:09.700 --> 00:11:12.600 Long only tax less harvesting type of tax Alpha that 226 00:11:12.600 --> 00:11:15.300  that is going to go away in a handful 227 00:11:15.300 --> 00:11:18.700  of years, right? Thank you for that. One of 228 00:11:18.700 --> 00:11:21.800  the the questions and this is gonna go really to 229 00:11:21.800 --> 00:11:24.200  investment vehicle more so than anything else. I've heard 230 00:11:24.200 --> 00:11:27.400  investors say like 2022 for instance. 231 00:11:28.200 --> 00:11:31.400 Horrible, no good very bad year for investors Equity fixed 232 00:11:31.400 --> 00:11:35.100  income both down investors who hold actively 233 00:11:34.100 --> 00:11:36.800  managed mutual funds. 234 00:11:37.900 --> 00:11:38.900 having negative return 235 00:11:39.900 --> 00:11:42.500 But they also got a pretty hefty tax bill 236 00:11:42.500 --> 00:11:45.600  in some scenarios right capital gains distributions in 237 00:11:45.600 --> 00:11:48.500  December. So Phil when investors 238 00:11:48.500 --> 00:11:51.200  are looking at open-ended mutual funds what are 239 00:11:51.200 --> 00:11:54.700  some of the things that they should be considering from a tax efficiency standpoint, 240 00:11:54.700 --> 00:11:57.700  you raise a good point and to some extent 241 00:11:57.700 --> 00:12:00.300  those examples of you know, being down and 242 00:12:00.300 --> 00:12:03.600  having a gains distribution. That's an unlucky 243 00:12:03.600 --> 00:12:06.600  combination of a handful of things right like it comes 244 00:12:06.600 --> 00:12:09.300  down to perform some fun what the 245 00:12:09.300 --> 00:12:12.400  Redemption level was how the fun generates cash 246 00:12:12.400 --> 00:12:15.900  to meet those redemptions and whether 247 00:12:15.900 --> 00:12:18.600  or not that's kind of gain realizing 248 00:12:18.600 --> 00:12:21.700  lost real estate realizing or neutral history of 249 00:12:21.700 --> 00:12:24.500  the mutual funds experience can maybe give you 250 00:12:24.500 --> 00:12:28.000  some insight into that as well as the strategy whether 251 00:12:27.300 --> 00:12:30.500  it's going to be, you know tax efficient in 252 00:12:30.500 --> 00:12:33.800  a neutral kind of scenario and whether 253 00:12:33.800 --> 00:12:36.500  it's you know, growing or stable 254 00:12:36.500 --> 00:12:39.500  as opposed to, you know, shrinking with a lot of redemptions. 255 00:12:40.400 --> 00:12:43.800 you mentioned tack sorry investment vehicles so very often 256 00:12:43.800 --> 00:12:44.200  we 257 00:12:45.100 --> 00:12:48.600 We compare mutual funds and ETFs and there are some important differences 258 00:12:48.600 --> 00:12:51.300  there on the income side, they're pretty 259 00:12:51.300 --> 00:12:55.200  even right funds all funds have to distribute income and 260 00:12:55.200 --> 00:12:58.900  they can choose the frequency with which they do that. Some of 261 00:12:58.900 --> 00:13:01.500  the differences really come into play with capital gains 262 00:13:01.500 --> 00:13:04.400  realization. Now mutual funds to me 263 00:13:04.400 --> 00:13:07.300  to Redemption they have to do that with the cash in the fund. They might 264 00:13:07.300 --> 00:13:10.500  have enough cash. They might need to sell to realize that 265 00:13:10.500 --> 00:13:13.000  to fund that Redemption and some of 266 00:13:13.100 --> 00:13:16.900  the things I mentioned earlier, you know, whether they have enough cash what 267 00:13:16.900 --> 00:13:19.300  their tax Lots look like how their age 268 00:13:19.300 --> 00:13:22.600  how they're Diversified how the fund's been performing, you know 269 00:13:22.600 --> 00:13:25.300  frequency and magnitude of redemptions all that will 270 00:13:25.300 --> 00:13:28.600  kind of impact whether or not you're end. They have realized 271 00:13:28.600 --> 00:13:31.800  game they need to distribute or not with ETFs. 272 00:13:31.800 --> 00:13:34.400  There's a little more complexity in how they're traded 273 00:13:34.400 --> 00:13:38.100  and some of the some of the capital gains efficiencies. 274 00:13:37.100 --> 00:13:40.400  So you and I can trade an ETF 275 00:13:40.400 --> 00:13:43.300  on an exchange and that doesn't involve the fund at all, you know, you 276 00:13:43.300 --> 00:13:44.900  sell share I buy a share from you and 277 00:13:45.100 --> 00:13:49.000 The fund's not involved funds doesn't need to find cash pretty 278 00:13:48.300 --> 00:13:51.400  simple. But there are some transactions that do 279 00:13:51.400 --> 00:13:54.700  involve the fund, you know, something called authorized participants help 280 00:13:54.800 --> 00:13:57.300  ETFs trade efficiently 281 00:13:57.300 --> 00:14:00.900  and sometimes they'll redeem directly with the fund the 282 00:14:00.200 --> 00:14:03.100  ETF the ETF has a choice 283 00:14:03.100 --> 00:14:06.600  to you know, redeem in kind or give Securities to that 284 00:14:06.600 --> 00:14:09.500  redeeming entity, right and in 285 00:14:09.500 --> 00:14:12.400  doing that there's no transaction. There's no realization 286 00:14:12.400 --> 00:14:15.100  of of gains and it gets 287 00:14:15.100 --> 00:14:18.400  even more interesting because that the fun can choose 288 00:14:18.400 --> 00:14:22.300  which shares to redeem out and they can often redeem 289 00:14:21.300 --> 00:14:25.000  out the lowest cost basis shares. Thereby, you 290 00:14:24.400 --> 00:14:27.700  know creating a very tax efficient fund vehicle. 291 00:14:27.700 --> 00:14:31.200  The investors still needs to pay tax on their gain 292 00:14:30.200 --> 00:14:33.800  if they sell their shares, right, but the 293 00:14:33.800 --> 00:14:36.700  fund itself can get pretty creative in 294 00:14:36.700 --> 00:14:39.300  in reducing cap games realization. So, 295 00:14:39.300 --> 00:14:42.300  you know, it depends sometimes on the strategy, you know, 296 00:14:42.300 --> 00:14:44.900  fixing strategies might not be as 297 00:14:45.100 --> 00:14:48.600 Efficient in an ETF as as Equity strategies and some 298 00:14:48.600 --> 00:14:51.200  mutual funds can certainly be very tax efficient. So, you know, 299 00:14:51.200 --> 00:14:54.300  it comes down to you know, I think education getting the 300 00:14:54.300 --> 00:14:57.200  right investment strategy and then, you know also choosing the right vehicle 301 00:14:57.200 --> 00:15:00.800  now, that's that's really interesting and we've had conversations 302 00:15:00.800 --> 00:15:03.100  on the differences between ETFs and mutual funds on 303 00:15:03.100 --> 00:15:06.300  this podcast. And what's really fascinating to me again, 304 00:15:06.300 --> 00:15:09.300  I'm gonna use the term convenient byproduct the creation of 305 00:15:09.300 --> 00:15:12.900  redemption process of an ETF isn't designed 306 00:15:12.900 --> 00:15:15.700  for tax efficiency. It's designed to 307 00:15:15.700 --> 00:15:18.200  making sure that the 308 00:15:18.200 --> 00:15:21.300  nav is equal to the underlying basket of 309 00:15:21.300 --> 00:15:24.700  stocks in that process in itself makes ETFs 310 00:15:24.700 --> 00:15:26.100  extremely tax efficient. 311 00:15:26.900 --> 00:15:29.900 So it's not the goal but it is is something 312 00:15:29.900 --> 00:15:33.700  that you get through that process, which is interesting. Okay, 313 00:15:32.700 --> 00:15:35.300  so just kind of recap here for 314 00:15:35.300 --> 00:15:36.600  our investors. 315 00:15:38.400 --> 00:15:41.100 When considering your tax status with your 316 00:15:41.100 --> 00:15:44.700  portfolios consider what we call an evidence-based 317 00:15:44.700 --> 00:15:47.400  investment philosophy Buy and Hold that 318 00:15:47.400 --> 00:15:51.700  tends to lead to not only a greater likelihood of outperformance 319 00:15:50.700 --> 00:15:53.100  by staying the course, but it 320 00:15:53.100 --> 00:15:56.500  reduces frictions reduces transactions in 321 00:15:56.500 --> 00:16:00.400  the portfolio. Thus leading to a higher level of tax efficiency consider 322 00:15:59.400 --> 00:16:03.000  the vehicles that you're using when using 323 00:16:02.300 --> 00:16:06.100  open-ended mutual funds gravitate towards 324 00:16:05.100 --> 00:16:08.400  more passively managed growing mutual 325 00:16:08.400 --> 00:16:12.000  funds ETFs certainly have tax benefits and 326 00:16:11.200 --> 00:16:14.400  for those investors that are deploying a 327 00:16:14.400 --> 00:16:17.200  direct indexing strategy. There's certainly more 328 00:16:17.200 --> 00:16:21.100  opportunities through the sheer number of names to identify losses 329 00:16:20.100 --> 00:16:23.500  to perform ongoing tax loss harvesting 330 00:16:23.500 --> 00:16:26.200  and then lastly Glenn against thanks for 331 00:16:26.200 --> 00:16:29.700  joining us adding a long short 332 00:16:29.700 --> 00:16:33.100  extension a 1:30 strategy certainly can 333 00:16:32.100 --> 00:16:36.100  help not only from a diversification standpoint, 334 00:16:35.100 --> 00:16:37.200  but also from 335 00:16:38.300 --> 00:16:42.000 Alpha generating strategy. So Glenn. 336 00:16:41.200 --> 00:16:44.300  Thank you so much for your time Phil. Thank you for joining us 337 00:16:44.300 --> 00:16:47.200  here for our listeners. Thank you for for listening to 338 00:16:47.200 --> 00:16:50.200  us. You can access this podcast and all of 339 00:16:50.200 --> 00:16:53.900  our podcasts and our series anywhere you get your podcasts and 340 00:16:53.900 --> 00:16:56.000  I look forward to our conversation next time. Thank you 341 00:16:56.200 --> 00:16:59.800  so much gentlemen, thank you. Thanks Cemetery Partners. LLC 342 00:16:59.800 --> 00:17:02.600  is an investment advisor firm registered with 343 00:17:02.600 --> 00:17:05.400  the Securities and Exchange Commission The Firm only 344 00:17:05.400 --> 00:17:08.300  transacts business in states where it is properly 345 00:17:08.300 --> 00:17:11.600  registered or excluded or Exempted from 346 00:17:11.600 --> 00:17:14.300  registration requirements registration of 347 00:17:14.300 --> 00:17:17.400  an investment advisor does not imply any specific level 348 00:17:17.400 --> 00:17:20.600  of skill or training and does not constitute an 349 00:17:20.600 --> 00:17:23.700  endorsement of the firm by the commission. 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You should not assume that any discussion or 362 00:18:00.700 --> 00:18:03.800  information contained in this material serves as 363 00:18:03.800 --> 00:18:06.400  the receipt of or as a substitute for 364 00:18:06.400 --> 00:18:08.900  personalized investment advice.

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