[Maximizing after-tax returns by combining superior stock selection with rigorous and active tax management, once only available to UHNW investors,  has become an integrated investment option with growing accessibility to the mass investment market. These tax-managed strategies - not only using loss harvesting - can deliver a customized investment solution with a focus on total return as a source of alpha to construct a portfolio with an optimal balance of risk, return, and cost.

To better understand how tax-managed investment strategies are designed and implemented, we were introduced to Jon Quigley, Chief Investment Officer and John Bright, Senior Portfolio Manager of Great Lakes Advisors Disciplined Equity Tax Managed Strategies. Great Lakes Advisors, LLC is a Chicago-based asset manager founded in 1981 that offers a wide range of client-focused, actively managed equity, fixed-income, and multi-asset strategy solutions. 

We focused our questions specifically on their tax-managed strategy that has actualized the age-old euphemism - “It’s not what you make, it’s what you keep”- into a personalized and widely accessible tax-managed investment solution for a wider swath of investors.]

 

Hortz: Why did you, as an investment manager, decide to develop tax-managed versions of your portfolios? What experiences and/or research led you to this decision?

Quigley: The Disciplined Equity team has always been driven to build solutions that meet the needs of our clients. Many of our strategies were launched to provide an investment solution for clients who had a specific need that was not met well in the marketplace. Our tax-managed strategies were launched for a large set of clients over 20 years ago. 

Bright: We realized our investment process directly lends itself to be a differentiated solution to a problem that was largely overlooked by many. The way we construct our portfolios gives us a great advantage in custom solutions like Tax Management and ESG. The tax-managed strategies were designed to reduce the tax drag of traditional equity strategies while maintaining the opportunity to outperform on a pre-tax basis.

Hortz: Why might the end of the year not be the best time for tax management?

Quigley: Many advisors and investment managers start looking for unrealized losses near year-end either as a service or at the request of their clients. History shows us that we would miss the lion’s share of harvesting opportunities by following that norm. Historically, November and December experience negative returns only around 20% of the time, while January and February have posted negative returns around 50% of the time over the last 25 years.

Calendar years such as 2012, 2014, 2015, 2016, 2020, and 2025 all experienced stock market losses in the early part of that year that eventually became gains by the time tax harvest season approached. That adds up to missed opportunity costs by only focusing on harvesting a few times per year.

Our approach gives us the ability to harvest losses opportunistically throughout the year, taking advantage whenever market volatility arises.

Hortz: What are some of the major applications for a tax-managed strategy? Who would be best served by a tax-managed investment solution?

Quigley: The best answer is that any taxable equity account should consider a tax-managed solution. However, there are some very compelling use cases. An advisor trying to win business from a prospect with taxable money needs a plan on how to best take over those securities. Our solution shows the client and advisor the plan we would use to transition into a tax-managed strategy without selling the entire portfolio. Having a plan helps the advisor to win over that prospect. 

Many investors have added ETFs over the last several years which are tax-efficient if you buy and hold. They offer little flexibility for investors who need to change investments or make transactions. We can manage ETF’s while adding individual securities to give investors more flexibility and reduce index concentration.

Bright: Additional opportunities are clients with unmanaged portfolios, slowly unwinding concentrated positions, or changing from other investment strategies or broker-dealers.

We also manage these strategies for Corporate taxable plans and Insurance companies that need tax efficiency in their equity allocations.

Hortz: How do you go about adapting an investment strategy to a tax-managed approach? What are the key steps to take to structure and implement that strategy transition?

Bright: Our investment process gives us a great opportunity to include tax management by design. Our focus on portfolio construction, risk, and return opportunities gives us insight across the entire equity market, security by security. Tax Management becomes a natural extension of the process.

We evaluate each position’s contribution to risk and return while understanding the imbedded tax cost.  When rebalancing, we can harvest losses, replacing the “loss” security with a similar position that improves portfolio risk and return opportunities.

Hortz: How did you specifically design your investment and portfolio construction process to attempt to beat benchmarks after taxes?

Quigley: Our process is designed as an institutional-quality strategy that fits into an asset allocation plan, which delivers a risk-controlled portfolio that focuses on stock selection as the main source of risk and return. By not making large market cap, sector, or industry bets, we are able to ensure we add value through stock selection which has been our largest source of relative performance historically.

With the ability to provide outperformance on a pre-tax basis, this allows us not to rely on loss harvesting solely for alpha. In years where loss harvesting is more difficult, this provides us an advantage to prevent portfolio lockup and adds flexibility to generate after-tax returns. 

Hortz: How do you approach the transition management for a client’s portfolio to transfer their assets to a tax-managed account?

Bright: We use our Transition Analysis tool to evaluate each portfolio. Each client comes to us with a unique set of holdings and cost basis. Positions are not sold off because they are not in a “model”.  Each lot, of each position, is evaluated for its risk contribution, return potential, and tax cost. This allows us to build a unique transition plan for each client utilizing a combination of their existing positions while adding positions that improve the risk and return potential.

Additionally, we try to minimize the tax impact at transition. Given our active approach, transitioning a portfolio generally has a lower upfront tax cost than most other strategies available.

Hortz: What technology issues are involved in a tax-managed account? How has tech enabled the ability to scale investment tax management to a larger audience?

Quigley: Technology is at the heart of the tax-managed solution. Coupling a proprietary technology platform with long-standing vendor partners allows us to individually manage each account at scale.  Bringing together risk exposures, individual tax lot information, market information, and return forecasts requires a strong data platform to effectively implement the tax-managed strategies. Improvements in technology across broker-dealers and custodians allow for better trading and accounting strategies with more partners across the marketplace.

Hortz: Any thoughts for advisors and other professional investors on how to explain and deploy these tax-managed vehicles into their clients’ overall portfolio?

Bright: We spent years refining and improving our Transition Analysis report to better serve our advisors and clients. The report shows a snapshot of current holdings and what those look like holistically across risk exposures, sectors, industries, and where the account stands from a tax standpoint.

The proposed portfolio we will generate will intuitively demonstrate the improvements we would make across the portfolio at transition and what the tax cost would be to effect the changes. This report can be used by an advisor with their client to understand how their portfolio would change at transition.

Quigley: We have also developed further support for our financial intermediary partners with our “Unlocking Investment Potential” overview/video and the “Advisor’s Guide to Tax-Managed Investing – An Often Overlooked Yet Growing Opportunity” e-book.

 

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Disclaimer: This interview is for informational purposes. Nothing contained herein constitutes investment advice or the recommendation of or the offer to sell or the solicitation of an offer to buy or invest in any specific investment product or service. Before investing, you should carefully consider the investment’s objectives, risks, charges, and expenses. This and other information can be obtained through https://www.greatlakesadvisors.com/our-strategies/disciplined-equity.html  and/or contacting your investment advisor. Please read the prospectus and other investment documents carefully before you invest. Investing involves risk, including the possible loss of principal.