Tax Aware

Understanding the Tax Efficiency of Relaxed-Constraint Equity Strategies

Topics - Tax Aware Alternative Investing Long-Short Relaxed Constraint

${ numberSection } ${ text }
Understanding the Tax Efficiency of Relaxed-Constraint Equity Strategies

We show how relaxing the long-only constraint may increase tax efficiency. We explain the tax benefits of relaxed-constraint equity strategies using an innovative decomposition of the total tax benefit into character and deferral components. We argue that our character-deferral decomposition can help investors intuitively understand the kind of tax benefits they may derive, or tax costs they may face, when allocating to different beta-one equity strategies. Finally, we describe the potential impact of the Tax Cuts and Jobs Act of 2017 on the tax benefits of tax-aware relaxed-constraint strategies.

 


AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

 

The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

 

Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. Hypothetical performance results are presented for illustrative purposes only.

 

Diversification does not eliminate the risk of experiencing investment loss.

 

Certain publications may have been written prior to the author being an employee of AQR.

This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.