*The study includes a series of hypothetical backtested portfolios made up of S&P 500 stocks, each incepted on January 1 of successive years, starting with 2001, and terminating on December 31, 2020. In every year where a loss sale was available, the relevant stock was “sold” at its lowest position of that year, with its contribution to the overall portfolio’s realized loss based on its relative weighting. The stock was then repurchased. Its new, lower basis was set at its purchase price, so that any further loss-harvesting sales would only take place if the stock price dipped below the new basis.
For example, Stock A was in the S&P 500 index on December 31, 2000, with a price of $100 per share. In 2001, the first year of the simulation, its low “water mark” was $73, for a 26% capital loss. Assuming the harvesting of the full loss, given the stock’s 0.4% weight in the S&P 500 at that time, the realized loss to the entire portfolio from the stock was around 0.1%. The stock subsequently appreciated, so it started 2002 at $100.19. The low water mark for that year was $87, or above the portfolio repurchase price of $73, so there was no loss harvesting opportunity.
This process was repeated for all the stocks within the S&P 500. For simplicity’s sake, portfolio stock weightings were updated as of year-end without reflecting realized gains so as to maintain allocations consistent with the index. See Additional Disclosures, including Additional Hypothetical Backtested performance disclosures, at the end of this material.
This material is intended as a broad overview of the portfolio manager's current style, philosophy and process. This material is presented solely for informational purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were, or will be, profitable. Any views or opinions expressed may not reflect those of the firm as a whole. All information is current as of the date of this material and is subject to change without notice. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
Investment strategies that seek to enhance after-tax performance may be unable to fully realize strategic gains or harvest losses due to various factors. Market conditions may limit the ability to generate tax losses. A tax-managed strategy may cause a client portfolio to hold a security in order to achieve more favorable tax treatment or to sell a security in order to create tax losses. A tax loss realized by a U.S. investor after selling a security will be negated if the investor purchases the security within 30 days. Although the team seeks to avoid “wash sales” whenever possible and temporarily restricts securities it has sold at a loss to prevent them, a wash sale can occur inadvertently because of trading by a client in an account not managed as a tax-managed account. A wash sale may also be triggered when the team has sold a security for loss harvesting and shortly thereafter the firm is directed by the client to invest a substantial amount of cash resulting in a repurchase of the security.
The consideration of wash sales pursuant to Internal Revenue Code 1091 is limited to any activity or ownership in the relevant tax-managed account only and does not consider any ownership or transactions that may occur in other accounts whether held at Neuberger Berman or elsewhere. Neuberger Berman does not provide legal or tax advice. Please consult with your tax advisor to determine the implication of this and any other investment accounts.
Additional Disclosures: Hypothetical Backtested Performance:
When calculating after-tax returns, the model applies the highest U.S. federal tax rates. For short-term gains, the highest U.S. federal marginal income tax rate is 43%. For long-term gains, the highest U.S. capital gains tax rate is 23%. These assumed tax rates are applied to both net-realized gains and losses in the portfolio. Applying the highest rate may cause the after-tax performance shown to be different than an investor’s actual experience. Investors’ actual tax rates, the presence of current or future capital loss carry forwards, and other investor tax circumstances will cause an investor’s actual after-tax performance to be over or under model estimates presented here. In periods when net realized losses exceed net realized gains, applying the highest tax rates to our calculations illustrates the highest after-tax return that could be expected of the portfolio, and assumes the maximum potential tax benefit was derived. Actual after-tax returns will vary. As with all after-tax performance, the after-tax performance reported here is an estimate. In particular, it has been assumed that the investor has, or will have sufficient capital gains from sources outside of this portfolio to fully offset any net capital losses realized, and any resulting tax benefit has been included in the model’s computation of after-tax performance.
The investment process represented in the model portfolio (simulated S&P 500 stock performance) has multiple steps: Benchmark after-tax returns are simulated for the portfolio using a hypothetical, after-tax benchmark portfolio with the same inception date, cash flows, cost basis, and tax rates as the client portfolio. The after-tax benchmark’s capital gain realization rate is based on the average turnover rate of the pre-tax benchmark and ending gain or loss of the after-tax benchmark for each period. After-tax benchmark returns are hypothetical, do not reflect actual trading, and may not be relied upon for investment decisions.
Hypothetical backtested returns have many inherent limitations. Unlike actual performance, it does not represent actual trading. Since trades have not been actually been executed, results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity, and may not reflect the impact that certain economic or market factors may have had on the decision-making process. Hypothetical backtested performance also is developed with the benefit of hindsight. Other periods selected may have different results, including losses. There can be no assurance that the Neuberger Berman will achieve profits or avoid incurring substantial losses. Neuberger Berman managed accounts in the manner reflected in the models during a portion of the backtested time periods shown.
Unless otherwise indicated, results shown reflect reinvestment of any dividends and distributions. Unless otherwise indicated, the hypothetical performance figures are shown gross of fees, which do not reflect the deduction of investment advisory fees, transaction costs and other expenses. If such fees and expense were reflected, returns referenced would be lower. Advisory fees are described in Part 2 of the advisor’s Form ADV. A client's return will be reduced by the advisory fees and any other expenses it may incur in the management of its account. The deduction of fees has a compounding effect on performance results. For example, assume the advisor achieves a 10% annual return prior to the deduction of fees each year for a period of 10 years. If a fee of 1% of assets under management were charged and deducted from the returns, the resulting compounded annual return would be reduced to 8.91%. Please note that there is no comparable reduction from the indices for the fees. Indexes are unmanaged and are not available for direct investment. The use of tools cannot guarantee performance. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.
Neuberger Berman Canada ULC is a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended. In Canada, Neuberger Berman Canada ULC is registered as: (i) a portfolio manager and exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Québec and Saskatchewan, (ii) an investment fund manager in Ontario and Québec, and (iii) a commodity trading manager in Ontario.
Neuberger Berman Investment Advisers LLC is a registered investment adviser. The "Neuberger Berman" name and logo are registered service marks of Neuberger Berman Group LLC.
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