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Loss harvesting strategies tax efficiently diversify concentrated stock

Author

Listed:
  • Slava Malkin

    (BlackRock, Inc.)

  • Harrison Selwitz

    (BlackRock, Inc.)

  • Taotao Cai

    (BlackRock, Inc.)

  • Lisa R. Goldberg

    (BlackRock, Inc.)

Abstract

We analyze strategies that seek to tax efficiently transform a concentrated position to a diversified equity portfolio by running back-tests on hypothetical portfolios. The average 200/100 long/short diversification strategy tax neutrally reduced the active weight of a concentrated position to 5% or less in 10 years in all 380 historical scenarios we examined. This reduction was achieved with an average hypothetical after-tax active return of 1.34% per year, net of transaction costs, financing costs and management fees, relative to the option of holding the concentrated position. An investor who prefers to retain some exposure to a concentrated position may opt for lower leverage or a long-only strategy that relies on an annual gains budget. We map the empirically observed characteristics of diversification strategies to investors’ preferences, enabling asset managers and advisors to customize appropriately.

Suggested Citation

  • Slava Malkin & Harrison Selwitz & Taotao Cai & Lisa R. Goldberg, 2025. "Loss harvesting strategies tax efficiently diversify concentrated stock," Journal of Asset Management, Palgrave Macmillan, vol. 26(5), pages 447-463, September.
    • Handle: RePEc:pal:assmgt:v:26:y:2025:i:5:d:10.1057_s41260-025-00411-5
    DOI: 10.1057/s41260-025-00411-5
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