{"title":"The Tax Benefits of Direct Indexing: Not a One-Size-Fits-All Formula","authors":"Nathan Sosner, Michael Gromis, Stanley Krasner","doi":"10.3905/jbis.2022.1.001","DOIUrl":"https://doi.org/10.3905/jbis.2022.1.001","url":null,"abstract":"Direct-indexing strategies realize tax benefits by harvesting losses on individual stock positions. Some investors might benefit from this powerful tool for growing after-tax wealth significantly more than others. An important determinant of the tax benefits of direct-indexing strategies is the tax rates applicable to gains from other investments. We argue that high-net-worth investors with allocations to hedge funds and derivatives are the most likely investors to have systematic short-term capital gains and, therefore, derive the highest tax benefits from direct-indexing strategies. We use a long history of U.S. stock returns to estimate the level of tax benefits offered by direct-indexing strategies under different tax rate assumptions. We show that investors, even those without short-term capital gains in their portfolios, can significantly increase the tax benefits of direct indexing by regular capital contributions and charitable giving of appreciated stocks. A character-deferral decomposition of the tax benefits helps explain what drives this result.","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"119 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116385581","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Jack Bogle: American Business Hero","authors":"B. Malkiel","doi":"10.3905/jii.2022.13.1.014","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.014","url":null,"abstract":"","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"51 4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127996135","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Remembering Jack Bogle’s Contributions to Investors","authors":"David M. Blitzer","doi":"10.3905/jii.2022.13.1.038","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.038","url":null,"abstract":"","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"5 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129984978","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Thematic Indexes: Expanding Dimensions of Indexing","authors":"A. Banerjee, S. Schoenfeld, Joy Yang","doi":"10.3905/jii.2022.13.1.069","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.069","url":null,"abstract":"Over the Past two decades, the explosion in passive management assets has occurred at an unprecedented speed. Along the way, indexing itself has seen multiple innovations in terms of the asset classes it covers, from traditional equities and fixed income to more opaque assets, such as real estate investments, more volatile assets, such as cryptocurrencies, and slower moving assets, such as art. Investment strategies have expanded from geographic and sector investing to more forward-looking metrics, such as Thematics. Thematic indexes are based on the idea that while sector classifications are important and core to measuring and benchmarking investment strategies, the potential for alpha can come in, proactively defining disruptive business models that are based on similar sources of top-down macro drivers.","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"50 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124866947","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Evolution of Index Investing: Past, Present, and Future","authors":"Marc R. Reinganum, Kenneth Blay","doi":"10.3905/jii.2022.13.1.079","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.079","url":null,"abstract":"Assets under management in US-domiciled index funds have grown from about $55 billion at the end of 1995 to over $12.5 trillion in 2021. Core beta indexes based on region, size, and sectors still dominate the index landscape in 2021. Strategic (or smart) beta indexes, including those labeled value and growth, have grown in scope but still only account for less than 15% of index AUM currently. Strategic beta exchange-traded funds have become the testing grounds for new ideas and index investment products. Looking forward, we conjecture expansion in multi-factor and fixed income index products. Simultaneously, much index innovation will be hidden from public inspection with the rise of custom and direct indexing. More indexing will move from index as an investment product to index as an investment service.","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127140475","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Dynamics of Risk: Implications for Asset Allocation Strategies","authors":"Joanne M. Hill","doi":"10.3905/jii.2022.13.1.057","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.057","url":null,"abstract":"Investors should have a sharper focus on the time dimension of risk and correlation metrics for the largest asset classes of equity and debt. We explore the dynamics of risk for large cap US equities and 60/40 stock/bond allocations over the decades and show that risk has fluctuated significantly. This implies that investors who have set risk preferences need to adapt their asset allocation strategies to these variations in risk and correlation. We show that strategies that utilize downside protection with equity index put options, specifically buffer protection strategy indexes, exhibit similar levels of risk reduction as 60/40 balanced portfolio strategies but have more variable beta exposure. Going forward, investors can benefit from incorporating dynamic risk and correlation forecasts into their asset allocation process and looking beyond fixed income diversification for risk management. Downside protection and other risk modification strategies within the equity bucket can be effective tools to better align the portfolio risk with investor risk targets.","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124969720","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"John Bogle was “Jack” to His Friends","authors":"Will Sharpe","doi":"10.3905/jii.2022.13.1.013","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.013","url":null,"abstract":"","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125452033","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Jack Bogle and Smart Beta: Disruption in the Investment Management Industry","authors":"R. Arnott, Katrina F. Sherrerd","doi":"10.3905/jii.2022.13.1.028","DOIUrl":"https://doi.org/10.3905/jii.2022.13.1.028","url":null,"abstract":"Jack Bogle, an ardent advocate of low-cost investing, transformed the investment industry in the mid-1970s with the first Vanguard index mutual fund that offered retail investors the opportunity to own the equity market (or at least the 500 companies in the S&P 500 Index) via a transparent, low-governance, high-capacity investment vehicle. Jack’s consistent message over the decades of the futility of trying to beat the market—and therefore the wisdom of cap-weighting—popularized the concept of separating alpha from beta. Without this bifurcation, the smart beta revolution might never have happened. In this article, Rob Arnott and Katy Sherrerd trace the evolution of beta investing from the launch of the Fundamental Index concept that motivated the term smart beta to the much broader beta investing landscape of today. They conclude with four actionable principles for investing in smart beta strategies.","PeriodicalId":284314,"journal":{"name":"The Journal of Beta Investment Strategies","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2022-03-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130713382","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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