Direct Indexing Seeks to Minimize Year-End Capital Gains Impact
Investment brief outlines how direct indexing can offer investors a way to mitigate year-end tax surprises and take greater control of their financial outcomes.
Back-to-back years of 20%+ gains in the S&P 500 Index leave many investors holding highly appreciated assets and assuming undue concentration risks.
As 2025 takes shape, PGIM Custom Harvest’s Robert Holderith and Jeff Conway share insights on the evolving market backdrop and explain how a direct indexing strategy can help overcome common investor challenges while contributing to a portfolio’s after-tax return potential.
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The ETF Advantage of Direct Indexing
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Direct Indexing: Advantages of an ETF-Based Approach
An ETF-based approach for a direct indexing strategy offers distinct advantages that may help improve after-tax results.
PGIM Custom Harvest was known as Green Harvest Asset Management prior to being acquired by PGIM Investments and becoming an indirect subsidiary of Prudential Financial on December 10, 2021. Performance for periods prior to December 10, 2021 was achieved by Green Harvest Asset Management prior to its change in ownership.
S&P 500 Index is an unmanaged index of 500 common stocks of large U.S. companies, weighted by market capitalization. Indices are unmanaged and are provided for informational purposes only. Investors cannot directly invest in an index. S&P® and S&P 500® are trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”) and these trademarks have been licensed for use by PGIM.
The views expressed herein are those of investment professionals at PGIM Custom Harvest at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. This commentary is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. This commentary does not constitute investment advice and should not be used as the basis for any investment decision. This commentary does not purport to provide any legal, tax, or accounting advice. PGIM Investments LLC is a registered investment advisor with the U.S. Securities and Exchange Commission.
PGIM Custom Harvest does not provide tax, legal, or accounting advice. This material is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Although PGIM Custom Harvest does not provide tax, legal, or accounting advice, we stand ready to assist clients and their advisors in reviewing the relevant tax rules.
The availability of tax alpha is highly dependent upon the initial date and time of investment as well as market direction and security volatility during the investment period. Tax loss harvesting outcomes may vary greatly for clients who invest on different days, weeks, months, and all other time periods. A client’s tax alpha will depend on the client’s individual circumstances, which are outside of PGIM Custom Harvest’s knowledge and control.
We work with outside accounting firms and tax counsel for guidance and updates on relevant tax law, and we have reviewed the tax treatment of our transaction structures with those professional advisors. Based on those reviews, PGIM Custom Harvest is satisfied that our structures support the desired tax results, but we urge clients to consult their own legal and tax advisors regarding the tax treatment of the transactions effected in their PGIM Custom Harvest account. Such transactions include ETFs. Federal, state and local tax laws are subject to change. PGIM Custom Harvest is not responsible for providing clients updates on any changes in tax laws, rules or statutes. Clients remain fully responsible for their own tax positions.
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