Fall Harvesting
Many investors believe selling stocks with embedded losses is a good tax strategy. As others sell these underperforming stocks, could they offer attractive entry points for prudent investors?
Many investors believe selling stocks with embedded losses is a good tax strategy. While the S&P 500 has delivered strong returns year-to-date (YTD) as of October 2024, there are still quite a few stocks within the index with negative YTD returns. With many investors following this strategy, could battered-down stocks provide an attractive entry point to prudent investors just as others are selling?
- Investors often harvest equity losses for tax purposes at the end of the year. Mutual funds typically sell before October 31st (the deadline for most to realize capital gains) and retail investors by December 31st.
- As the graphic shows, stocks that are tax loss candidates (TLCs) - or those down more than 10% in a calendar year through October - have historically outperformed the stock market from November through January by an average of 1.9% (since January 1986 through January 2024, according to analysis from Bank of America).
- With over seventy stocks in the S&P 500 Index down more than 10% this year, we believe there may be notable selling at a tax loss. This dynamic may create a buying opportunity for TLCs, due to their potential disconnect from company fundamentals. While past performance is not indicative of future performance, battered-down stocks that have compelling long-term growth prospects may offer compelling returns in the months ahead.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of November 2024. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as environmental or natural disasters, war, terrorism, pandemics, outbreaks of infectious diseases and similar public health threats, recessions, or other events could have a significant impact on investments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
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Tax Loss Candidates, defined by Bank of America Securities, are stocks within the S&P 500 that are down 10% or more from January 1 – October 31 in a calendar year.
The following positions represent firm wide assets under management as of August 30, 2024: Bank of America Corp, 0.04%.
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