Tax Loss Harvesting: Where the Asset Classes Stack Up in 2015

Nov 4, 2015

As the end of the year approaches, many investors review the performance of their portfolio holdings for opportunities for tax loss harvesting – the process of selling securities at a loss to offset securities that have been sold at a gain. This process can potentially lead to beneficial tax efficiencies as losses and gains are netted at the end of the year.

In addition to the potential tax benefits of harvesting losses, it also can give investors an opportunity to switch to new strategies in the same asset class with lower fees or smarter investment approaches.

Below is a breakdown of the year to date returns for a variety of benchmark indexes spanning multiple asset classes. Benchmarks with more negative returns are good indications of areas in a portfolio where there may be opportunities for tax loss harvesting.

Given the selloffs in emerging markets and MLPs this year, consider switching existing emerging market exposures to the Global X Next Emerging & Frontier ETF (EMFM) which provides access to among the fastest growing countries in the world, as well as the Global X MLP ETF (MLPA), the lowest management fee MLP ETF in the US1.

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Category: Articles

Topics: Macroeconomic

Investing involves risk, including possible loss of principal. International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Frontier markets generally have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. These countries are subject to potentially significant political, social and economic instability, which could materially and adversely affect the companies in which EMFM may invest. EMFM invests in securities and markets that are susceptible to fluctuations in certain commodity markets. Commodities represent a significant portion of the Latin American and Middle Eastern economies. Any negative changes in commodity markets could have a great impact on these economies. Unlike most exchange-traded funds, EMFM intends to effect all creations and redemptions partially for cash, rather than in-kind securities. As a result, an investment in EMFM may be less tax-efficient than an investment in a more conventional ETF. Diversification does not prevent all investment loss.

Investments in securities of MLPs involve risk that differ from investments in common stock including risks related to limited control and limited rights to vote on matters affecting the MLP. MLP common units and other equity securities can be affected by macro-economic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards MLPs or the energy sector, changes in a particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). The funds invest in the energy industry, which entails significant risk and volatility. In addition, MLPA is non-diversified, which represents a heightened risk to investors. Furthermore, MLPA invests in small and mid-capitalization companies, which pose greater risks than large companies. There is no guarantee distributions will be made and dividends may be reduced or eliminated at any time. The potential tax benefits from investing in MLPs depend on them being treated as partnerships for federal tax purposes. MLPA is taxed as a regular corporation for federal income tax purposes, which differs from most investment companies. The amount of taxes currently paid by MLPA will vary depending on the amount of income and gains derived from MLP interests and such taxes will reduce an investor’s return from an investment in the funds. MLPA will accrue deferred income taxes for any future tax liability associated with certain MLP interests. Upon the sale of an MLP security, MLPA may be liable for previously deferred taxes which may increase expenses and lower the fund’s NAV.

Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Global X NAVs are calculated using prices as of 4:00 PM Eastern Time. The closing price is the Mid-Point between the Bid and Ask price as of the close of exchange.

This information is not intended to be individual or personalized investment or tax advice. Please consult a financial advisor or tax professional for more information regarding your tax situation. The fund is required to distribute income and capital gains which may be taxable. Buying and selling shares will result in brokerage commissions and tax consequences. Shares are only available through brokerage accounts which may have minimum requirements. Only whole shares may be purchased.

Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds’ full or summary prospectus, which may be obtained by calling 1-888-GX-FUND-1 (1.888.493.8631), or by visiting Read the prospectus carefully before investing.

Global X Management Company, LLC serves as an advisor to the Global X Funds. The Global X Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Global X Management Company or any of its affiliates.