ETF Strategists Offer Year-End Advisor Tips

December 16, 2013

At the end of 2013, investors should think about harvesting losses, and a lot more.

IndexUniverse asked three of its contributing ETF strategists to serve up a few end-of-year tips for investors, ranging from tax matters to issues related to asset allocation.


Michael Vogelzang, president and chief investment officer of Boston-based Boston Advisors LLC

The most obvious is to harvest losses. If you’ve got emerging market funds or if you’ve got bond funds that are down for this year, tax loss harvesting is the most obvious thing. Frankly, if you don’t do this, it’s malfeasance; certainly if you’re managing money for other people, this is malfeasance. You have to harvest losses.

And the wonderful thing about ETFs is you can find things that are close enough, with high enough correlation, but that are still different from an SEC perspective, so that you can still make an investment [steering clear of the wash-sale rule].

I’m not an expert on this, but the IRS has been vague on this. It has said you can’t buy identical things. So you can’t sell SPY (SPDR S&P 500 | A-98) and buy VOO (Vanguard S&P 500 | A-96)—you can’t do that. It’s the same fund. You can’t buy and sell them instantaneously and realize a loss—it’s effectively a wash sale.

But that doesn’t matter. If you have VWO (Vanguard FTSE Emerging Markets | B-85)—it’s down this year, 5 or 10 percent, depending on when you bought it. Whether you go through an individual name, like EEM (iShares MSCI Emerging Markets | B-100), or something that has high correlation, it's not hard.

And if you really wanted to be safe, you could piece together some regional emerging market funds that provide you the same level of investment. You could sell your VWO at a loss, go buy your proxy, hold it for 30 days. The most you’re going to get is a few basis points of variation.

So it’s easy to replace the beta in an IRS-friendly way so you don’t have to afraid of wash sales and you have to be out of the market for 30 days. That doesn’t happen with individual stocks.

If you don’t do tax-loss harvesting, it’s walking by nickels on the sidewalk, as they say.


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