{"id":550240,"date":"2026-07-29T22:20:23","date_gmt":"2026-07-29T22:20:23","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/550240\/"},"modified":"2026-07-29T22:20:23","modified_gmt":"2026-07-29T22:20:23","slug":"ossified-portfolios-arent-the-end-of-the-road","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/550240\/","title":{"rendered":"Ossified Portfolios Aren\u2019t the End of the Road"},"content":{"rendered":"

The Low-Basis Dilemma<\/p>\n

\u201cMy client is locked up.\u201d<\/p>\n

\u201cThe tax bill is too big to make a change.\u201d<\/p>\n

\u201cWhat happens when the losses run out?\u201d<\/p>\n

For advisors working with high-net-worth clients and mature portfolios, these are familiar challenges. Over time, successful portfolios accumulate embedded gains, making change feel prohibitive and, in some cases, avoidable altogether.<\/p>\n

This often leads to the conclusion that there may be limited opportunity to continue adding value at the portfolio level. With fewer losses to harvest and meaningful changes carrying a tax cost, the role of ongoing tax management may come into question.<\/p>\n

In this context, direct indexing and other tax-aware strategies can provide greater control over tax outcomes as portfolios evolve over time.<\/p>\n

The Misconception: Ossified Means Inactive<\/p>\n

The idea that an \u201cossified\u201d portfolio no longer offers meaningful opportunities to add value is often misguided. Of course, as portfolios appreciate, the opportunity to harvest losses does decline. That is expected, but it does not mean that active portfolio management becomes irrelevant.<\/p>\n

Unlike pooled vehicles, portfolios constructed from individual securities enable active decision making across hundreds of positions and tax lots, even at low basis. In practice, even highly appreciated portfolios remain active across multiple dimensions:<\/p>\n

Cash is raised for withdrawals or reallocations by prioritizing higher cost-basis positions<\/p>\n

New cash flows, including contributions, dividends, and other income, are reinvested to create new tax lots<\/p>\n

Charitable gifting is used to reduce low-basis exposure efficiently<\/p>\n

Risk and tracking error are continuously monitored and managed<\/p>\n

Tax lock is a natural feature of mature taxable portfolios\u2014it reflects a decline in available loss-harvesting opportunities as gains accumulate. It is not, however, a signal that the portfolio is \u201cstuck,\u201d nor a reason to eschew active management.<\/p>\n

Tax Alpha Does Not Disappear. It Evolves.<\/p>\n

Another common misconception is that tax alpha is driven exclusively by loss harvesting and therefore diminishes as losses become less available. This view is incomplete.<\/p>\n

As portfolios mature, the primary driver of value shifts toward gain deferral and compounding (see exhibit 1).<\/p>\n

By deferring gains:<\/p>\n

Taxes are postponed rather than realized, allowing a larger portion of the portfolio to remain invested<\/p>\n

The value of this deferral increases with time, as a longer compounding horizon allows a greater portion of pre-tax capital to remain invested<\/p>\n

The longer gains are deferred, the greater the potential impact on after-tax outcomes<\/p>\n

If held through an estate event, embedded gains may receive a step-up in cost basis, potentially eliminating the associated tax liability<\/p>\n

Managing Ossified Portfolios in Practice<\/p>\n

Direct indexing is designed to operate within the constraints of low-basis portfolios, providing multiple levers to maintain flexibility over time. These include:<\/p>\n

Staged transitions<\/p>\n

Rather than triggering a large, immediate tax event, portfolios can be repositioned gradually. This can be aligned with a client\u2019s tax budget, market conditions, and planning horizon.<\/p>\n

Tax-efficient share selection<\/p>\n

When raising cash, managers can selectively sell higher-cost-basis shares to help minimize realized gains. This is an advantage not available in pooled vehicles.<\/p>\n

\"NTAM_Ossified_Portfolios_Exhibit_1.png\"Exhibit 1 taken from: Ossified Portfolios Aren\u2019t the End of the Road<\/a><\/p>\n

Charitable optimization<\/p>\n

Highly appreciated securities can be donated to:<\/p>\n

Remove low-basis positions<\/p>\n

Create a possible tax deduction<\/p>\n

Support client philanthropic objectives<\/p>\n

Ongoing portfolio activity<\/p>\n

Even mature portfolios continue to evolve through ongoing turnover, driven by:<\/p>\n

These flows create new tax lots over time, which help regenerate the opportunity set within the portfolio.<\/p>\n

A More Durable View of Tax Management<\/p>\n

Low-basis portfolios are a common reality for high-net-worth clients, but they are not a dead end. Tax lock indicates a shift in the opportunity set\u2014towards gain deferral, the compounding of tax savings, and ongoing tax-aware decisions.<\/p>\n

In select cases, advisors may consider complementary approaches, such as tax-aware long-short strategies, to expand the range of potential outcomes and introduce additional sources of tax-loss generation. Ultimately, any strategy that offers tax-lot-level flexibility is better positioned to adapt, maintain control over outcomes, and continue adding value over time.<\/p>\n

Northern Trust Asset Management has decades of experience managing tax-advantaged equity strategies and implementing direct indexing solutions for taxable investors. Learn more here: https:\/\/ntam.northerntrust.com\/united-states\/financial-professional\/solutions\/direct-indexing\/deliver-compounding-value<\/a><\/p>\n

Disclosure:<\/p>\n

IMPORTANT INFORMATION<\/p>\n

Past performance is not indicative of future results. Individual results may vary.<\/p>\n

This document may not be edited, altered, revised, paraphrased, or otherwise modified without the prior written permission of Northern Trust Asset Management (NTAM). The information contained herein is intended for use with current or prospective clients of Northern Trust Investments, Inc (NTI) or its affiliates. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation.<\/p>\n

NTAM and its affiliates may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.<\/p>\n

This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.<\/p>\n

All securities investing and trading activities risk the loss of capital. Each portfolio is subject to substantial risks including market risks, strategy risks, advisor risk, and risks with respect to its investment in other structures. There can be no assurance that any portfolio investment objectives will be achieved, or that any investment will achieve profits or avoid incurring substantial losses. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Risk controls and models do not promise any level of performance or guarantee against loss of principal. Any discussion of risk management is intended to describe NTAM\u2019s efforts to monitor and manage risk but does not imply low risk.<\/p>\n

Past performance is not a guarantee of future results. Performance returns and the principal value of an investment will fluctuate. Performance returns contained herein are subject to revision by NTAM. Comparative indices shown are provided as an indication of the performance of a particular segment of the capital markets and\/or alternative strategies in general. Index performance returns do not reflect any management fees, transaction costs or expenses. It is not possible to invest directly in any index. Net performance returns are reduced by investment management fees and other expenses relating to the management of the account. Gross performance returns contained herein include reinvestment of dividends and other earnings, transaction costs, and all fees and expenses other than investment management fees, unless indicated otherwise. For additional information on fees, please refer to Part 2A of the Form ADV or consult an NTI representative.<\/p>\n

This information is intended for purposes of NTI and\/or its affiliates marketing as providers of the products and services described herein and not to provide any fiduciary investment advice within the meaning of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). NTI and\/or its affiliates are not undertaking to provide a recommendation or give investment advice in a fiduciary capacity to the recipient of these materials, which are for marketing purposes and are not intended to serve as a primary basis for investment decisions. NTI and\/or its affiliates may receive fees and other compensation in connection with the products and services described herein as well as for custody, fund administration, transfer agent, investment operations outsourcing, and other services rendered to various proprietary and third-party investment products and firms that may be the subject of or become associated with the services described herein.<\/p>\n

Northern Trust Asset Management is composed of Northern Trust Investments, Inc. Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K, NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.<\/p>\n

NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE<\/p>\n

\u00a9 2026 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A.<\/p>\n","protected":false},"excerpt":{"rendered":"The Low-Basis Dilemma \u201cMy client is locked up.\u201d \u201cThe tax bill is too big to make a change.\u201d…\n","protected":false},"author":2,"featured_media":550241,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[138,246,111,139,69,244,245],"class_list":["post-550240","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-finance","tag-new-zealand","tag-newzealand","tag-nz","tag-personal-finance","tag-personalfinance"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/550240","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=550240"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/550240\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/550241"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=550240"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=550240"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=550240"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}