Written by: Gavin Romm, CFA and Alec DeWitt
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.
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.
"Our research shows that fixed-income SMAs employing systematic tax optimization can realize meaningful tax alpha."
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.