Using Single-Country ETFS as Part of a Tax-Loss Harvesting Strategy

With the holiday season underway, it’s time again to give thanks for tax-loss harvesting opportunities! Dina Ting, Franklin Templeton’s Head of Global Index Portfolio Management, sheds light on the benefits of single-country ETF allocations against what has been a rocky macro backdrop and discusses ways to re-evaluate potential opportunities in terms of tax-loss decision-making.

Key takeaways:

  • This year’s pronounced divergence in market performance presents an opportune time for investors to consider tax-loss harvesting strategies with single-country exchange-traded fund (ETF) allocations.
  • A key consideration in tax-loss decision-making is whether a comparable or highly correlated ETF exists at a lower cost for those seeking to maintain desired exposures to chosen markets with attractive long-term prospects.
  • For many investors, international markets are still underrepresented in their portfolio allocations. Global stocks, however, offer potential diversification benefits and many have favorable characteristics that offer differentiated long-term opportunities. Japan, for example, has seen improving governance boost company profits and attract foreign investors with increased buybacks and dividends.

With U.S. technology mega cap’s dominant role in the S&P 500 Index’s rally this year and the anti-climactic reopening of China from its zero-COVID policy, many investors have shied away from increasing their global equity exposure. As of the end of September, global equity funds saw net outflows of $10.65 billion.1

However, in our opinion, certain markets benefit from positive macro and geopolitical catalysts, combined with longer-term trends that favor equities abroad, and some of 2023’s underperforming holdings may be prime candidates for tax-loss harvesting.