June 23, 2022
Most investors recognize that concentrated stock holdings are risky, but the outright sale of a low-basis stock incurs a punitive tax burden. In this post, we highlight several tax-efficient alternatives to an outright sale and explore how long/short strategies can help enhance this tax efficiency.
June 9, 2022
AQR Managing and Founding Principal Cliff Asness sat down with Institutional Investor Editor-in-Chief Michael Corcoran to answer some of the key questions on ESG investing. The conversation covered how a quantitative manager can effectively engage with companies, how investors can use their portfolios to help address climate change, why shorting is an effective ESG tool, and more.
For the past two decades, the stock/bond correlation – a fundamental detriment of risk in traditional portfolios – has been consistently negative. However, this hasn’t always been the case, and a positive stock/bond correlation could reappear due to macroeconomic changes. In this article, we assess the broad implications this would have for investors and set out practical steps to prepare for such an outcome.
May 12, 2022
Entrepreneurs and executives holding much of their wealth in a highly appreciated single stock face either the high risk of idiosyncratic volatility and potentially catastrophic losses, or selling stock and facing an immediate, punitive tax burden. This paper evaluates this choice and explains how it relates to classic betting strategies and economic theory, finding tax-efficient techniques might strike the balance between the urgency to diversify concentrated risk and aversion to taxes.
May 6, 2022
See where “Investing Amid Low Expected Returns” has been featured in the press.
May 1, 2022
To manage climate risks, investors need reliable climate exposure metrics, but such risks may be difficult to measure, particularly along the supply chain. Using broadly accessible data, we propose an intuitive metric that quantifies the exposure a company has to customers and suppliers. Our metric is related to scope 3 emissions and captures the strength of economic linkages as well as the overall climate exposure of a firm’s customers and suppliers.
April 22, 2022
Interest in commodities is rising again, thanks to their tendency to be particularly strong diversifiers during periods of rising or volatile inflation. We review what a “best-in-class” commodity portfolio looks like by exploring three potential enhancements to a passive approach to the asset class.
March 14, 2022
Increasingly many allocators are interested in computing their portfolio’s carbon footprint. We show that historical emissions data are useful despite a substantial 1-2 years’ lag typically to when investment portfolios are built.
February 28, 2022
As equity portfolios appreciate over time, opportunities to harvest losses become few and far between. Whether you’ve been invested in a passive equity portfolio or in a Direct Indexing strategy, you’ve likely found that harvesting losses was much easier in the first few years after inception. Beyond that, not only does harvesting losses become a challenge but even keeping up with index reconstitutions might be difficult without recognizing capital gains. Appreciated portfolios—once a benefit—become a liability later in their life-cycle.
January 10, 2022
As a result of recent Treasury regulations, investors in investment partnerships, such as hedge funds, might end up recognizing capital gains when they contribute their partnership interests to a charity. We explain how such taxable gains upon charitable contributions arise and quantify how punitive they might be.