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Preparing Client Portfolios for Tax Hikes

With tax hikes looming, it is extremely important for investors and advisors to consider the turnover in their strategies and if the strategy is built for the long-haul.  While nothing is set in stone yet, we discuss some of these potential tax implications in a recent article from John Holt, CFA, 2021: The Year of Rebalancing, “Taxes are coming. It’s no longer a question of “if”, but “when”.”  

If you are considering changes to your tactical allocations, make sure to review our updates of aggregate valuation characteristics of popular indices.

As always, we recommend sticking to a comprehensive approach centered on valuation and wealth creation principles. This approach, while not quite as exciting as speculating on which crypto coin is on its way to the moon or which meme stock will pop next, has allowed us to help our clients navigate some extreme market conditions since the mid-nineties.  Applied Finance co-founder, Rafael Resendes, recently discussed our approach in some detail with Jack Forehand and Justin Carbonneau in a recent episode of their Excess Returns podcast.

Applied Finance research team delivers several thoughtful reviews of the previous quarter, our expectations of what’s ahead, and the performance of our proprietary quantitative factors.

Jun Wang, CFA provides an in-depth review of Q1 2021 and provides an outlook for U.S. large-caps in an environment where inflation, borrowing costs and taxes are all expected to rise.

Derek Bergen, CFA examines the relationship between value stocks and rising inflation and whether “value” stocks will benefit.

Lastly, Applied Finance and our Mutual Fund were recently featured by CityWire ProBuy.

The Valuation Edge™ Newsletter Articles:

Looking Backward and Forward – Q1 2021 Review
Jun Wang, CFA discusses whether a richly valued US large cap equity market can cope with the prospect of higher inflation, higher borrowing cost, and higher taxes?

Does Inflation Actually Benefit Value Stocks?
Navigating allocation decisions in the face of rising inflation requires more careful stock selection than the current set of passive investment vehicles or factor-based alternatives are equipped to deliver.  While there may be a leverage-related theme to consider, the HML factor is likely a weak leverage proxy.  It conflates other concepts (valuation, style, leverage, and profitability), which would imply that a direct measure of leverage is likely more reliable.

Citywire ProBuy Boutique of the Month: Applied Finance Capital Management
Our Co-founder, Rafael Resendes, has been featured by Nicole Piper in Citywire ProBuy’s latest ‘Boutique of the Month’ discussing the firm’s founding, our flagship Applied Finance Select Fund & our Quantitative Valuation investing approach.

Rafael Resendes on Excess Returns Podcast
Mr. Resendes joins Jack Forehand and Justin Carbonneau to discuss how systematic value investing has lost its identity, the out-of-sample performance of low P/B value stocks, intrinsic value, Economic Margin and the drivers of value over time.

2021: The Year of Rebalancing
In just 12 short months, $8.3T flooded into the US Economy and the country is spending much more than current tax revenues allow. The bill will come due, and it will begin to come due soon. 2022 now appears to be the most likely start for tighter policies.

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