{"id":647654,"date":"2026-05-04T18:02:10","date_gmt":"2026-05-04T18:02:10","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/647654\/"},"modified":"2026-05-04T18:02:10","modified_gmt":"2026-05-04T18:02:10","slug":"tax-managed-long-short-equities-gain-traction-with-rias","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/647654\/","title":{"rendered":"Tax-Managed Long-Short Equities Gain Traction With RIAs"},"content":{"rendered":"

As the S&P 500 continues its bumpy ride through the Iran war, asset managers are promoting an investing strategy that might help advisors capitalize on market swings and stock dispersion\u2014tax-managed long-short equities.\u00a0<\/p>\n

The strategy involves placing bets on both long equity positions and shorting underperforming stocks, potentially limiting losses during down markets and providing tax benefits for investors who need to offset capital gains elsewhere in their portfolio. However, investing in long-short equities is not without its downsides, including higher-than-average fees, lack of participation in market upside, the added risk of using leverage for short positions and potential for tracking errors that rise with market volatility.<\/p>\n

The short positions used in these strategies typically involve borrowing overvalued stocks from an asset manager, then selling them just before their price is expected to decline. The investor can then buy the stocks back at the lower price and return them to the original owner, profiting from the price difference, with the money often reinvested in remaining positions. According to a paper by Boston Partners, long-short strategies tend to perform well during periods of high interest rates, due to greater dispersion across stocks. They also make more sense when equities are overvalued, with little room for further price gains.<\/p>\n

Related:AlphaCore Puts Alternatives at the Heart of its Strategy<\/a><\/p>\n

When to Use a Long-Short Strategy<\/p>\n

Tax-aware long-short strategies are particularly well-suited for investors who want to sell out of their concentrated stock positions or face another one-time profit-generating event where they would benefit from offsetting capital gains with losses, according to experts.\u00a0<\/p>\n

\u201cIt can be extremely helpful for folks who have a large or maybe an unexpected capital gains event,\u201d according to Greg Kanarian, direct investing strategist at Natixis Investment Managers. \u201cFor example, if I run a small business and somebody buys my business. I\u2019ve got a big capital gains event that, let\u2019s say, closes in June. Now I\u2019ve got six months to harvest as many losses as possible. It\u2019s going to be a very slow process using direct indexing. But if I do a tax-aware long-short strategy, and I add a lot of leverage, I am able to harvest losses very quickly.\u201d<\/p>\n

Natixis launched a new long-short strategy, the Gateway Long\/Short Extension Strategy, in September 2024. The strategy, which focuses on large cap stocks and aims to build a core exposure with a customizable benchmark and a default ratio of 130\/30\u2014meaning for every $100 investment, the manager borrows $30 to invest in more long bets and another $30 for short stocks that will be sold when their price drops. Since its inception through year-end 2025, the strategy delivered a total return 18.69%, compared to the S&P 500\u2019s 17.82%. Natixis shorted stocks including Marsh & McLennan, PG&E Corp. and Ingersoll Rand, while going long on the Magnificent Seven, Berkshire Hathaway and JPMorgan Chase.<\/p>\n

Related:Advisors Urge Investors to Wait on SpaceX<\/a><\/p>\n

Long-short strategies can be a good fit for investors \u201cwho want to sell out of an appreciated position and offset that with losses,\u201d said David Stubbs, chief investment strategist at AlphaCore Wealth Advisory, a La Jolla, Calif.-based RIA with $8.6 in assets under management. \u201cI think this strategy is very interesting and can be part of responsible wealth management, but advisors should understand the broader risks and the implications for the portfolio.\u201d<\/p>\n

This is particularly true if, in an effort to generate losses quickly, advisors agree to ratchet up leverage.\u00a0<\/p>\n

In recent months, managers that have launched long-short equity strategies included J.P. Morgan Asset Management, Neuberger Berman, WisdomTree Asset Management, NEOS and QuantumStreet AI, among others. Morningstar data shows nine funds focusing on long-short strategies launched in 2025 and two year-to-date in 2026.<\/p>\n

Related:The Biggest Drag on Investor Returns Is Behavior<\/a><\/p>\n

\u201cWe are definitely seeing more and more appetite for these types of strategies. Less than 18 months ago, there were still a lot of advisors and firms that were just learning about this. Last year was definitely the year when we started to see more of these early adopters, and I don\u2019t really see it slowing down this year,\u201d said Josh Rogers, senior client portfolio manager at Invesco. \u201cThere is lots of interest, lots of use cases. There are so many things happening in the market\u2014the volatility of some of the stock positions; there are a lot of clients planning for capital gains events. And we are starting to hear about the SpaceX IPO<\/a>.\u201d<\/p>\n

Long-Short Strategies Don\u2019t Always Deliver<\/p>\n

Invesco launched a tax-optimized long-short SMA four years ago, requiring a minimum investment of $500,000 to $1 million. Rogers described tax-optimized long-short strategies as an evolution in how tax advantages have evolved from mutual funds to ETFs to direct indexing, and now extending to long-short SMAs.<\/p>\n

However, long-short strategies are not well-suited for every client and don\u2019t always deliver on their promise.\u00a0<\/p>\n

\u201cWe believe that people should do significant due diligence on these strategies,\u201d said Stubbs. \u201cThey obviously have the ability to be very tax-efficient. But we are fully aware that these strategies have tracking errors relative to their underlying benchmark, whether the benchmark is equity markets or cash, and that tracking error rises significantly when the growth exposure rises. Under certain scenarios, scenarios that should be taken very seriously, there is potential for that tracking error to impact overall returns and volatility of the client portfolio.\u201d<\/p>\n

Long-short strategies are also not particularly cheap. Rogers estimates that long-short SMA clients pay fees starting in the 40 to 50 basis points range. On top of that are financing costs that add another 25 to 30 basis points.<\/p>\n

Meanwhile, custodial giants Fidelity and Charles Schwab have both tried to limit advisor access to long-short strategies in recent months. Fidelity stopped opening new long-short accounts last December and raised financing fees for some existing clients. Charles Schwab has limited the share of an RIA\u2019s assets in its account that can be allocated to long-short strategies to 30%.<\/p>\n

Among the long-short funds tracked by Morningstar, only Gotham Total Return Institutional, launched in 2015, earned a Gold Medalist rating. Meanwhile, Morningstar data shows that one of the oldest-running funds in the category, AMG Veritas Global Return (BLUEX), which goes back to 1991, has consistently underperformed its broader index. Year-to-date, BLUEX\u2019s annual return declined by 5.26, while the index gained 3.36%.<\/p>\n

A bear market is when the payoff for long-short strategies \u201ctends to come with any magnitude,\u201d according to Chris Tate, senior managing research analyst at Morningstar. Most asset managers that specialize in long-short strategies, however, prefer markets with high volatility and dispersion in returns, he said. And the more fundamentals-driven managers might rely on a time horizon for their short stocks to go down that can be a year away, or longer. That might make the strategy a better fit for investors with a higher tolerance for illiquidity and volatility and a longer investment timeline.<\/p>\n

Unnecessary Costs<\/p>\n

According to a paper\u00a0by Jeremy Milleson and Jeff Wagner of Parametric<\/a>, proponents of the strategy often assume that the investor will have unlimited gains and that the leverage they undertake for short positions in a long-short strategy will serve only to help them realize greater losses for tax management purposes. In reality, Milleson and Wagner note, most investors don\u2019t have unlimited gains, and their advisors would have to carefully manage the strategy to generate just enough losses to benefit the overall portfolio without incurring unnecessary costs through greater leverage. In those cases, investors would actually benefit more from a long-only strategy.\u00a0<\/p>\n

In addition, investors who only need the long-short strategy to offset gains from a one-time capital gain event won\u2019t benefit from remaining committed to the strategy for the long haul, according to Milleson and Wagner. Continuing to allocate to a leveraged strategy would create unnecessary costs for them without an obvious benefit.<\/p>\n

Both Stubbs and Rogers stress that advisors should consider clients\u2019 long-term needs when deciding whether to allocate to long-term strategies. These strategies cannot be unwound instantly, Stubbs warned, and liquidating them creates a substantial tax event. And while using these strategies to defer taxes can help some investors achieve their objectives, those taxes will still have to be paid eventually, Rogers noted.<\/p>\n

\u201cThe first thing I tell advisors is it should be a portfolio that, agnostic of the tax benefits, you would want to invest in,\u201d Rogers said. \u201cMost clients and, candidly, most advisors have probably never had short positions in a client\u2019s portfolio and maybe never used leverage before. We have built out a lot of end-client-approved content and are spending time with advisors to ensure they feel comfortable and confident with it. But I think there is a lot more room for education across the entire industry.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"As the S&P 500 continues its bumpy ride through the Iran war, asset managers are promoting an investing…\n","protected":false},"author":2,"featured_media":647655,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,133,131,132],"class_list":["post-647654","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-ca","tag-canada","tag-finance","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/647654","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=647654"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/647654\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/647655"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=647654"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=647654"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=647654"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}