Defina Maluki, CFA, Managing Partner and Chief Investment Officer of Sagewood Asset Management, joined Zoe Hunt, Host of RIA Channel, to discuss the potential benefits of combining tax-aware and long-short strategies.
Sagewood manages tax-aware, long-short, options, and volatility strategies for ultra-high-net-worth investors. Maluki highlights the firm’s unique ability to combine tax-aware long-short strategies with options solutions to provide a more holistic investment approach.
He also notes a growing interest in tax-aware long-short strategies, pointing to the extended bull market as a potential driver. Maluki explains that traditional direct indexing seeks exposure to benchmarks such as the S&P 500 while harvesting tax losses. However, during an extended bull market, tax-loss harvesting opportunities can become limited. Instead, tax-aware long-short strategies can help extend tax-loss harvesting potential and generate additional tax losses within portfolios.
Maluki identifies taxable U.S. investors with liquid portfolios, concentrated stock positions, and traditional direct indexing portfolios as potential candidates. Given the added complexity, he emphasizes the importance of advisor education, particularly around leverage, associated risks, and higher fees. He also highlights the importance of working with managers focused on generating excess returns rather than simply tracking an index to help offset these additional costs.
Looking ahead, Maluki says Sagewood is focused on generating beneficial long-term tax outcomes for clients, including launching tax-enhanced absolute return strategies.
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