Nathan Erickson, CFA

[Nathan Erickson, CFA @nathanferickson]

@markcecchini Equity

[Nathan Erickson, CFA @nathanferickson]

@TaxAlphaInsider The funny thing about the Coreo deal was they negotiated to what someone with eight figures should pay anyway, 0.50% or less. Wealth management and tax in one place adds a ton of value. If he’s tired of thinking about, outsource it and make sure he’s getting value for the fee.

[Nathan Erickson, CFA @nathanferickson]

@MFintwit @HML_Compounder And who doesn’t have equity in their portfolio their entire life? It’s the most tax-efficient way to own it. And you can spend some of it tax free every year (unless you need the losses for something else).

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske It’s 70% long/short defensive equity and 30% trend following, with a 0.5 beta. I don’t think ACWI is a fair benchmark.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 4/ What are you benchmarking Delphi to that it’s underperforming by 8.5%?

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 3/ Delphi’s value is ordinary loss creation, not capital loss. Capital losses don’t end when you reach basis, they’re suspended, and can be unlocked by future gains in the fund or through liquidation. You should still benefit from ordinary loss creation. Every year.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 2/ Implementation matters. A 1.5% tracking error L/S is not the same as AQR’s market neutral L/S. Can’t rule out anything, but consider the risks and tradeoffs as part of the decision. The fact that it can’t be definitively ruled out doesn’t mean it won’t add value over time.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 1/ Ultimately you are trading the uncertainty of pre-tax alpha for the certainty of tax-alpha. We have different views on the probability that pre-tax alpha is positive over time. However I think the probability that negative alpha and fees overcomes tax alpha is very low.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske Never said it was assured, but given you need an economic substance argument, it has the best defense. That being said, I’d suggest Rob Arnott’s Malkiel’s monkey article. Pretty much anything that rebalances to something other than market cap is better than a cap weighted index.

[Nathan Erickson, CFA @nathanferickson]

@cliffcornell_ Good summary!

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 5/ L/S never exhausts tax alpha. No matter what implementation of US equity, eventually I’m stuck with it unless I want to pay tax: ETF, DI, L/S. But L/S gives me the most flexibility and optionality. And unless Fama/French is wrong, the alpha isn’t that elusive.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 4/ At minimum, with the benefit of perpetual loss generation, L/S should be able to maintain more consistent tracking error than DI, which over time has to realize gains to maintain tracking error. That’s negative alpha. And I get no tax alpha out of ETFs.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 3/ For decades direct indexers made the case that their tax alpha was worth their fee. If L/S at minimum triples tax alpha over 10 years, for 10bps more expense and financing fees that are tax deductible, that’s a pretty low bar for pre-tax alpha.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske 2/ if zero tracking error is #1 priority, then yes own index ETFs. The question is whether the tax alpha is worth tracking error risk, and if the tracking error is positive enough net of fees to make the tax alpha worth it.

[Nathan Erickson, CFA @nathanferickson]

@ItsWhoYouKnow_ @scottsalaske Who doesn’t have realized gains in their life? Unless someone is never spending their portfolio or rebalancing, loss harvesting has value. At minimum a base TA L/S should produce 5% losses annually. At LTCG that’s at least 1% tax alpha, forever. Plus whatever pre-tax alpha…

[Nathan Erickson, CFA @nathanferickson]

@MebFaber Send me your @SpaceX referrals!

[Nathan Erickson, CFA @nathanferickson]

@spencerjogden @MarkTMeredith @ElmWealth If you don’t unwind the strategy, losses continue to accumulate in perpetuity. You can withdraw a percentage each year tax free so you can use it…

[Nathan Erickson, CFA @nathanferickson]

@alphaarchitect @justinaknope Tweet of the year