TAX.IB™ : Tax Managed Large Cap Portfolio

Managed by IB Asset Management

2.4% Last 30 days 4.3% Last 90 days - Last 365 days - Sharpe Ratio - Max Drawdown

TAX.IB™ : Tax Managed Large Cap Portfolio

Managed by IB Asset Management

2.4% Last 30 days 4.3% Last 90 days - Last 365 days - Sharpe Ratio - Max Drawdown
Risk score
Strategy Smart Beta
AUM fee 0.08%
Requirements
• Investment minimum: $5,000
or Sign up to invest
The Tax Managed Large Cap portfolio is a portfolio designed to systematically deliver return and risk characteristics of large stocks within the US equity market while potentially reducing the investor’s overall tax liability. Every quarter, the portfolio is rebalanced with the objective to harvest unrealized investment losses while trying to maintain the target capitalization weighting. Tax losses incurred in this portfolio could be potentially used by investors to offset other gains and income depending on their unique circumstances. The portfolio is implemented using a rules-based approach and offered at a relatively low cost.

Research

The goal is to achieve a risk-return profile similar to the large stocks within the US equity market, while harvesting unrealized investment losses with a quarterly frequency. Replacement stocks are chosen based on how similar they are to the original stock on various fundamental factors like market capitalization, valuation, industry classification and others. On average, these replacement stocks have similar expected risk and return characteristics as the stock that is being replaced but there can be no assurance that the replacement stocks will perform the same or similarly.

Approach

The portfolio is constructed using a rules-based algorithm to determine position allocations. Initial allocations are based on capitalization weights. Stocks with unrealized investment losses are replaced with similar, correlated stocks. The portfolio tries to harvest losses without changing the desired risk and return characteristics.

Allocation discipline

The portfolio will target an allocation of 150 long positions. The initial allocation is based on capitalization weight where the security universe consists of the largest stocks within the US equity market. Every quarter, the portfolio is rebalanced with the objective to harvest unrealized investment losses while trying to maintain the target capitalization weighting.

Sell discipline

Sell decisions will be based upon selling stocks with unrealized investment losses and replacing them with similar stocks.

Exceptions

Positions in stocks undergoing corporate actions may be sold or adjusted.

All performance information on this page is based on the performance of the Portfolio Manager’s account. Client performance may differ. This information was calculated on October 17, 2017.

Daily returns
Performance
S&P 500
Manager (net of fees )
Last 30 days 2.4% 2.4%
Last 90 days 4.3% 3.5%
Last 365 Days - 20.4%
Since inception 10.4% 8.4%

This hypothetical performance data is calculated over the period April 30, 1999 to February 28, 2017

Summary (Annualized)
23.9% 1 year 10.2% 3 year 13.0% 5 year 7.1% 10 year 4.2% Since inception
Daily returns
Performance (Annualized)
S&P 500
Manager (net of fees )
1 year 23.9% 22.3%
3 year 10.2% 8.3%
5 year 13.0% 11.6%
10 year 7.1% 5.3%
Since inception 4.2% 3.5%
Risk metrics
S&P 500
Manager (net of fees )
Volatility 14.3% 14.8%
Sharpe Ratio 0.26 0.20
Sortino Ratio 0.35 0.27
Maximum Drawdown -52.0% -52.6%
Value-at-risk (95%, 1 week) -6.9% -7.2%
Additional metrics
vs. S&P 500
Information Ratio 0.3%
Alpha 0.83
Beta 0.96
R-Squared 1.0%

Hypothetical disclosure

It is important that you review these disclosures about the Hypothetical Back-Tested Results you are about to review. Please do not close or navigate away from this screen until you review the important disclosures below.

BY VIEWING THIS PAGE, YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND THESE DISCLOSURES.

Limitations of hypothetical back-tested results

You have opted to view hypothetical back-tested results for this portfolio.

These hypothetical back-tested returns are NOT actual results based on actual trading of real client funds for any time periods before March 29, 2017. These hypothetical back-tested results are not based on nor bear any relation to the actual performance of any Interactive Brokers Asset Management client portfolio. Covestor Ltd is doing business as Interactive Brokers Asset Management and is referred to throughout this disclosure as “IBKRAM”.

IBKRAM does not make any representation that any client will or is likely to achieve results similar to the hypothetical results presented here. No IBKRAM client actually attained these hypothetical results. These hypothetical back-tested results are not an indicator of the future returns a client will realize by investing in this portfolio. Actual results in an IBKRAM client account employing this strategy could differ significantly from these back-tested hypothetical results depending on factors such as: broad stock market performance, factor returns, available liquidity, interest rates, economic growth, transaction costs, and other market factors.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

IBKRAM has provided back-tested hypothetical results for this portfolio for informational and educational purposes only.

This portfolio was launched on IBKRAM on March 29, 2017. Any return information about this portfolio pertaining to any time periods before March 29, 2017 is based on hypothetical back-tested results. Hypothetical back-tested results and related risk metrics are calculated and presented separately from performance and risk metrics based on trading of actual funds.

There is an important distinction between the method used to calculate hypothetical and actual returns for this portfolio. Hypothetical back-tested returns before March 29, 2017 are calculated on a month-end basis with this monthly series of hypothetical returns then used as basis for calculating the various risk and return metrics presented. (See detailed discussion of the calculation of hypothetical returns in the section below, IBKRAM 's back-testing calculation methodology and assumptions). This is different from the returns based on actual trading of this portfolio starting on March 29, 2017 which are calculated daily, as for all the other portfolios on the IBKRAM platform. Consequently, the month-end calculation of hypothetical back-tested results for this portfolio may limit their comparability to the daily calculation of actual returns.

Limitations of back-testing generally

Back-testing uses historical data to test the viability of a particular investment strategy, and attempts to indicate how a product constructed with the benefit of hindsight would have performed during a certain period in the past if the product had been in existence during that time. Specifically, back-tested results are hypothetical and do not reflect actual trading or the effect of material economic and market factors on the investment process, and back-testing does not place any client money at risk.

Based on criteria applied retroactively with the benefit of hindsight and knowledge of factors that may have positively affected the results of the portfolio, back-tested results cannot account for all financial risk or other market factors that may affect the actual performance of this portfolio.

Since trades have not actually been executed, results may have under- or over-compensated for the impact, if any, of certain market factors, such as the effect of limited trading liquidity, and may not reflect the impact that certain economic or market factors may have had on the investment process. Further, back-testing carries the additional risk that the security selection and portfolio construction processes have been overfitted or adjusted to maximize past hypothetical returns in order to present the investment strategy in a favorable light. Actual performance in a client account could thus differ significantly from back-tested performance.

IBKRAM's back-testing calculation methodology and assumptions

These hypothetical back-tested results reflect the deduction of advisory fees, brokerage or other commissions and other expenses that an IBKRAM client would have to pay if he invested in this portfolio after the launch date.

Both for purposes of actual trading and for purposes of calculating these hypothetical back-tested results, this portfolio only invests in securities that trade on a US stock exchange. Options, futures, commodities, derivatives, leverage and shorting are not used in this portfolio.

IBKRAM calculated these hypothetical back-tested results by retroactively applying a model designed on the basis of historical data with the benefit of hindsight, and based on assumptions integral to the model, which may or may not be testable and are subject to losses. IBKRAM tested various fundamental factors with the goal of delivering systematic exposure to different risk premiums available. IBKRAM constructed this portfolio by selecting securities with attractive fundamental characteristics. IBKRAM's analysis involved creating and systematically rebalancing quarterly a hypothetical portfolio to test the quantitative validity of the factor-based strategy. This model used historical price and fundamental metric data going back to April 30, 1999. When data for a security became unavailable because, for instance, a stock stopped trading for any reason, e.g., bankruptcy, merger or acquisition, or the trading data for the stock was unavailable for an open position, IBKRAM assumed the security was closed at the last monthly price. Hypothetical trading activity took into account brokerage commissions, other transaction fees and an estimation of spread cost for each security.

To calculate these hypothetical returns, IBKRAM started with a hypothetical investment amount of $5,000. Using historical fundamental data supplied by Thomson Reuters WorldScope database (described here: https://www.rimes.com/data/thomson-reuters-worldscope/), IBKRAM then ran its investment process as if it had been investing in and trading the portfolio starting on April 30, 1999. IBKRAM then calculated the number of shares to hypothetically trade in each security selected, and the commissions and other associated transaction costs.

For purposes of this calculation, IBKRAM used a modified version of Interactive Brokers LLC’s standard tiered commission structure, which we believe facilitates efficient investing and is also applicable to actual trading in this portfolio. Under this structure, IB charges $0.0035 per share in commissions based on the whole “basket” of securities in a client’s Smart Beta investment rather than on each security. Generally, IB charges a minimum commission for the basket of all securities orders in a client account equal to the lower of $5 or 0.05% of trade value, if more than the standard tiered commissions charge of $0.0035 per aggregated shares in the client basket. Interactive Brokers commissions are capped at 0.5% of the value of the basket trade.

To provide a more conservative estimate of the price at which IBKRAM could have bought or sold a security in the past, during the time periods covered by the hypothetical back-tested returns, IBKRAM used recent data of the bid-ask spread for each security to calculate a more realistic trading price. This generally led to a higher price for purchases and a lower price for sales, thus providing a more conservative, realistic estimate of the trade price used to calculate hypothetical back-tested returns.

IBKRAM calculated these hypothetical returns on a monthly basis. At the end of each month, IBKRAM used the price of each position multiplied by the units of each position to calculate the value of the portfolio. IBKRAM rebalanced the portfolio quarterly by calculating its new target portfolio allocations and generating the trades required by calculating the difference between the new and old position. This process was then continued for each period until IBKRAM reached the end of the period covered by the hypothetical back-test.

IBKRAM calculated the return for each monthly period as the difference in portfolio value over the period. For example, if:

  1. The portfolio value on May 31, 2014 was $10,000 and the portfolio value on June 30, 2014 was $12,500
  2. IBKRAM calculated the hypothetical return for the month of June 2014 to be 25% following this formula:
    1. Period return = (month end value - prior month end value) / prior month end value
    2. Period return = ($12,500 - $10,000) / $10,000 = 25%

IBKRAM then used this time series of monthly returns to derive the hypothetical returns and risk metrics presented for the entire time period covered by the back-test. These hypothetical returns and risk metrics are static in nature, calculated once and will not change or update in the future unless the applicable advisory fees or brokerage commissions increase at which time IBKRAM will recalculate the hypothetical back-tested returns based on those revised advisory fees and/or commissions.

The model IBKRAM used to calculate these hypothetical back-tested returns assumes that the markets were sufficiently liquid to execute trades in the US equity market, subject to the above referenced recent bid-ask spread data for each security used to calculate a more realistic trading price that IBKRAM could have achieved. The model also assumes no external cash flows into the portfolio (i.e., investments into or withdrawals from the portfolio). These hypothetical back-tested results also reflect an estimate of dividends based on a weighted average of dividend yield for all positions held during each period. Namely, IBKRAM used an end-of-quarter dividend yield value for each stock in the portfolio and aggregated all those dividend yield values across the portfolio based on security weight. IBKRAM then divided the quarterly value by three to calculate a monthly value used in the return calculation.

IBKRAM makes no representations and warranties as to the reasonableness of any of these assumptions.

IBKRAM does not guarantee that there will be sufficient liquidity to implement this model or that the model will work and attain results similar to these hypothetical or positive results. Investing in this portfolio presents the potential for loss as well as for profit.

IBKRAM makes no guarantees as to accuracy of data underlying these back-tested results

While IBKRAM believes that the data used to calculate the hypothetical results on this page was obtained from reliable sources, in generating the hypothetical charts and results for this portfolio IBKRAM used historical market data which has not been audited and validated, and may contain errors in pricing or other conditions. IBKRAM exclusively relied on data compiled by a third-party (i.e., the Thomson Reuters Worldscope database) for market data and information as the basis for these hypothetical return calculations, and cannot be responsible for the accuracy of this data.

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About IB Asset Management

IB Asset Management is a pioneer in online investing. IB Asset Management offers a variety of portfolios, including the Smart Beta portfolios, which are managed by IB Asset Management's Chief Investment Officer and Investment Management team. The “Smart Beta” approach to portfolio construction is grounded in academic research. The goal is to achieve an alternative risk-return profile which is more attractive than a simple capitalization-weighted index such as the S&P 500. IB Asset Management Smart Beta portfolios are designed to provide systematic exposure to a fundamental factor or combination of factors. Portfolios are constructed using a rules-based approach and offered at a relatively low cost.

Important Information

  1. IB Asset Management does not provide tax advice and does not represent in any manner that investing in this portfolio will result in any particular tax consequences. The tax consequences of investing in this portfolio are complex, uncertain and may be challenged by the IRS. Current and prospective clients should consult their personal tax advisers regarding the tax consequences of investing in this portfolio or any other IB Asset Management portfolio, based on their particular circumstances. IB Asset Management does not assume any responsibility for the tax consequences for any investor of any transaction. Clients and their personal tax advisers are responsible for how the transactions conducted in their accounts are reported to the IRS or any other taxing authority on the Client's personal tax returns. You can find more information on this portfolio and using a tax-loss harvesting strategy here. For additional information on claiming tax losses on your tax filings, review the IRS instructions on Schedule D (Form 1040) Capital Gains and Losses, IRS Publication 550 or speak with your tax adviser.
  2. The losses experienced by clients investing in this portfolio may be different than those indicated on this page (which correspond to the proprietary account owned by IB Asset Management) depending on the timing of a client's investment in and redemption from this portfolio. A client's ability to reduce a tax liability through investments in this portfolio depends on the client's tax and investment profile, including: (a) purchases and sales in investments of the client or the client's spouse at IB Asset Management, Interactive Brokers or elsewhere; (b) type of investment (taxable versus nontaxable); (c) holding period (short versus long); (d) the client's tax rate; (e) account size; and (f) the amount of capital gains and income a client has against which the client can apply losses harvested in this portfolio. For instance, clients in certain tax brackets may not owe capital gain taxes and certain tax-favored accounts (e.g., Roth and traditional IRAs) do not benefit from tax-loss harvesting as they are already tax-free or tax-deferred. Also, a tax-loss harvesting strategy may not benefit short-term investors.
  3. Transactions in another IB Asset Management portfolio or outside of IB Asset Management may affect whether a loss experienced in this portfolio is successfully harvested and, if so, whether that loss is usable by the client in the most efficient manner. IB Asset Management clients could write off harvested losses in this portfolio against capital gains generated in this same portfolio, other IB Asset Management portfolios, other Interactive Brokers investments, or elsewhere in their taxable accounts. Any losses are first applied to offset any investment gains and then, if any losses are left, up to $3,000 in ordinary income. Harvested tax losses not utilized during the tax period when recognized may be generally carried forward indefinitely to offset future capital gains and income, if any. But capital losses cannot be carried over after a taxpayer's death and are deductible only on the final income tax return filed on the descendent's behalf.
  4. IB Asset Management does not monitor for wash sales in client accounts and will not provide notice of wash sales to clients investing in any of its portfolios. Clients are responsible for monitoring their and their spouse's accounts, including their IB Asset Management investments, Interactive Brokers investments, and other investments, to confirm that transactions in the same or substantially similar security do not create a "wash sale," i.e., a sale at a loss and purchase of same or similar security during the 61-day wash sale period. Very generally, the wash sale rule disallows losses if the security is replaced with a substantially identical security during the wash sale period. Clients may find information on wash sales in their Interactive Brokers 1099-eligible accounts on their daily, monthly and annual Activity Statements. Clients may violate the wash sale rule and be unable to harvest certain of their tax losses if they use multiple tax-loss harvesting providers or brokers. For more information on the wash sale rule and other tax-loss harvesting-related issues, please read IRS Publication 550 and our FAQs.
  5. IB Asset Management does not represent or guarantee that the performance of the stocks selected to replace stocks that have experienced capital losses during quarterly rebalancing will be the same or similar to that of the initial holdings despite their similar expected risk and return characteristics. That performance could be better or worse than the performance of the securities that IB Asset Management sells for tax-loss harvesting purposes. IB Asset Management selects replacement stocks on the basis of how similar they are to the original stocks on several fundamental factors, such as market capitalization, current valuation, industry classification, historical return on assets, and others, leading on average to the replacement stocks having similar expected risk and return characteristics as the stock being replaced.
  6. Tax-loss harvesting can be used to defer tax liabilities, not avoid them, and therefore is less beneficial over a short investment horizon. Depending on when the client invests in the portfolio and because quarterly rebalancings seek to harvest unrealized investment losses while preserving capital weights, some of the trades made by IB Asset Management in this portfolio could actually result in clients experiencing different losses, and even net capital gains. Additionally, the act of harvesting tax losses resets the investment's cost basis and holding period, potentially resulting in higher future taxes and a negative tax alpha in the year of liquidation. The tax-loss harvesting objective of this portfolio may lead to significantly higher turnover compared to a strategy that does not try to harvest losses. This higher turnover could result in bid-ask spread expenses, higher transaction costs, and dividends being disqualified from qualified dividend treatment. IB Asset Management tries to mitigate this disadvantage with low basket trading commissions and quarterly versus more frequent rebalancings.
  7. This portfolio was launched on IB Asset Management on March 29, 2017. Return information prior to the launch date consists of hypothetical back-tested data not based on actual trading of real client funds. These hypothetical results reflect the deduction of (i.e., are net of) IB Asset Management’s advisory fee, Interactive Brokers LLC brokerage and other commissions and other expenses that a client will have to pay if he invests in this portfolio after March 29, 2017. Hypothetical back-tested results are not an indicator of the future returns a client will realize by investing in this portfolio. No IB Asset Management client actually attained these hypothetical results. For a more detailed discussion of the hypothetical nature of this return information and a discussion of the calculation methodology used, review these disclosures.
  8. There is an important distinction between the method used to calculate hypothetical and actual returns for this portfolio. Hypothetical back-tested returns before March 29, 2017 are calculated on a month-end basis with this monthly series of hypothetical returns then used as basis for calculating the various risk and return metrics presented. (Please read these disclosures for a detailed discussion of the calculation of hypothetical returns.) This is different from the returns based on actual trading of this portfolio starting on March 29, 2017 which were calculated daily, like the other portfolios on the IB Asset Management platform. Consequently, the month-end calculation of hypothetical back-tested results for this portfolio may limit their comparability to the daily calculation of actual returns.
  9. Past performance is no guarantee of future results, and all investments, including those in this portfolio, involve the risk of loss, including loss of principal and a reduction in earnings.  
  10. The actual performance of the manager account is based on the performance of an IB Asset Management proprietary account invested using this strategy and is calculated by IB Asset Management on a daily time-weighted basis, including cash, dividends and earnings distributions. The actual performance for this portfolio is presented “net of fees” and reflects the deduction of the IB Asset Management advisory fee, Interactive Brokers LLC brokerage and other commissions and expenses that a client has to pay if he invests in this portfolio after the launch date.
  11. None of the performance information displayed on this page is based on the actual performance of any IB Asset Management client account investing in this portfolio. The performance in an IB Asset Management client account invested in this portfolio may differ (i.e., be lower or higher) from the Portfolio Manager’s account performance based on any trading restrictions imposed by the client (resulting in different account holdings), time of initial investment, amount of investment, frequency and size of cash flows in and out of the client account, applicable brokerage commissions, and different corporate actions. Clients investing in this portfolio may view the actual performance of their investment in this portfolio by logging into their IB Asset Management account and reviewing their customized dashboard.
  12. All graph data is as of the end of day for the referenced period, unless otherwise specified. The investment minimum is the minimum investment required to follow a particular portfolio. The minimum amount is determined by IB Asset Management, based on the characteristics of the underlying portfolio. It should not be considered as specific investment advice for your investment situation.
  13. The hypothetical back-tested and actual performance charts are provided for informational purposes only, and should not be used as the basis for making an investment decision. We rely on mathematical formulas, computer programs, and pricing information from third-party vendors (Thomson Reuters Worldscope database) to provide these returns. Neither IB Asset Management nor any of its data or content providers shall be liable for any errors in this information or any actions taken by you in reliance upon this information.
  14. Benchmark returns displayed have been calculated by IB Asset Management using daily benchmark prices and do not include dividend income. More information here. For certain portfolios IB Asset Management uses an index as a benchmark, while for others it uses an investable exchange traded fund (ETF) as a benchmark. Index returns do not reflect the deduction of any management fees, transaction costs or expenses. Individuals cannot invest directly in an index. Investable ETF returns reflect the deduction of (i.e., are net of) management fees, transaction costs and expenses.
  15. Transaction history is available upon request. Portfolio classifications are provided by IB Asset Management, and are intended to serve as a general guide.
  16. Not all transactions listed will appear in accounts due to IB Asset Management's trading rules and individual client constraints. Eligibility of these securities is monitored periodically, and may change over time. Actual client investment holdings may vary.