On this episode, Adam Butler is joined by Wes Gray for a deep dive into advanced tax-efficient investing strategies. The discussion explores the mechanics of Section 351 contributions for creating tax-deferred ETFs, a powerful tool for investors with already diversified portfolios. They contrast this approach with solutions for managing highly concentrated stock positions, such as exchange funds and market neutral tax loss harvesting, and also touch on the use of box spreads for optimizing collateral.
Topics Discussed
• Section 351 contributions as a method for converting diversified portfolios into an ETF wrapper tax-free
• Utilizing exchange funds as a solution for concentrated stock positions, which involves a seven-year lockup period
• Employing market neutral long/short strategies to systematically harvest tax losses and reduce concentrated positions over time
• The mechanics of tax loss harvesting, where market beta typically generates losses in the short book, squeezing the tax basis into the long leg
• The core concept of the "physics of tax," where tax liability is deferred or shifted rather than eliminated
• Using concentrated equity positions as collateral to fund overlay strategies, an application of capital efficiency and Return Stacking
• The use of box spreads on SPX options to generate cash-equivalent returns with more favorable 60/40 capital gains tax treatment instead of ordinary income
• The growing demand and innovation in tax optimization solutions for high-net-worth investors
• Integrating tax management engines within investment funds to offset tax liabilities from primary trading strategies like managed futures
