Get strategic with tax-loss harvesting

Ahmed Farooq, CIMA®, CFP

Ahmed Farooq, CIMA®, CFP
Vice President - ETF Business Development at Franklin Templeton Canada

Connect on LinkedIn

I can’t believe it’s nearly the end of 2018! I’m looking forward to catching up with friends and spending time with family, but before all this happens, the end of the year is a good time to have a discussion on the upcoming tax-loss harvesting season. As you may know tax-loss harvesting is a strategy designed to help you lower your tax burden. It involves selling your poorly performing investments at a loss and then using those losses to offset realized taxable gains on other investments.

An overview of tax-loss harvesting

Here are a few important points to remember:

  • You must first apply the loss against the capital gains in the current year
  • You can carry-forward any remaining losses up to three years to offset future capital gains
  • These investments cannot be held within a tax-sheltered account (i.e. your TFSA or RRSP)
  • You can’t sell and re-buy the same security within a 30-day period

Of course I am not a tax specialist. The process of tax-loss harvesting can be complicated, so before engaging in this strategy I recommend speaking with your in-house tax specialist to ensure you are doing it right and within the Canada Revenue Agency’s guidelines.

Seizing the opportunity

Given that tax-loss harvesting involves selling and buying securities, ETFs, or Mutual Funds, I think it’s the perfect time to take a fresh look at your portfolio. Take advantage of this opportunity to free-up cash that you can then deploy into securities that may provide similar or different outcomes, if you are looking to change your investment outlook. By taking a strategic view you can re-consider your investment strategy and long-term goals.

In a year that has witnessed increased market volatility and turbulence, you can probably identify a few funds in your portfolio that may not have performed as well as you hoped. These portfolio laggers may inspire you to explore a few key markets that you may want to consider taking a different position in.

Getting strategic in Emerging Markets

Despite starting the year off strong, emerging markets (EM) has had a difficult year due to fears about new tariffs, trade wars and slowing growth. If you want to be a little more strategic in your emerging markets equity selection, this is your opportunity to make the switch for tax-loss harvesting purposes and transition to a different EM fund (like our Franklin LibertyQT Emerging Markets Index ETF (FLEM) that uses a smart beta approach to tilt towards historically-rewarded factors whose goal is to provide a smoother performance ride, a lower beta, and a higher dividend yield. Our bias is toward Quality and Value.

Managing risk within your Canadian exposure

Likewise, our home and native land also has had a pretty difficult year. Canada has continued to suffer from depressed commodity prices, all-time lows in Canadian oil prices and the fear that comes with normalizing interest rates. Our Canadian Equity ETF (FLRM) is actively managed and designed for clients who want to participate in the upside potential of the Canadian equity market, but cannot stomach the volatility. The fund actively uses put options as a hedging strategy to reduce the impact of a steep Canadian market decline.

Going active with Global Fixed Income

If you’re taking a holistic look at your portfolio, then you should also consider your fixed income allocation. Global bond markets have been a popular topic lately as some pundits have claimed that there is growing risk with both government and corporate debt from a global standpoint. If you are concerned about this you may want to consider transitioning to a fixed income fund like FLGA that actively manages duration, maturity and yield. This ETF will provide access to global government, sovereign, and corporate bonds on an active currency hedged basis.

Finding Value in a European Resurgence

With stage three rollout in Ontario, it is going to be interesting to see how we integrate back into new societal norms.

Evolution of Franklin Templeton means greater specialization

Change, I find, is often a positive and that holds true in most areas of life.

All Duration isn’t Created Equal

An interview with global fixed income portfolio manager John Beck

The Fatigue Factor Under Lockdown

Communicating with clients and colleagues has not been too much of an issue during the pandemic. There are limits to the digital experience, however, and as we face our third severe lockdown here in Ontario, burnout is becoming more apparent.

A podium finish for investing in Japan

The 2020 Tokyo Olympic Games is scheduled to begin July 23, a full year after its original start date.

Inflation concerns in the post-COVID economy

Given the historically high levels of fiscal and monetary stimulus during the pandemic, inflation concerns have been building so far in 2021.

Innovation in the ETF Ecosystem

ETFs in Canada have come along way over the past five years. They are a vital part of the portfolio construction process for many investors and their popularity continues to grow.

A Revolution in Innovation

We will all remember 2020 for many reasons, but key amongst them was how our dependence on technology was undeniably set in stone.

2020: An Unforgettable Year To Forget

Where do I start after a year like 2020? One thing is for sure, we will all remember the past year for the rest of our lives, both from a personal and professional standpoint

U.S. election worries and the case for active management

It is amid this uncertainty, and with the possibility of much more geopolitical and economic turbulence to come, that I would like to make the case for active management.

NEO last price methodology

Given all the possible questions about the exchange-traded funds (ETF) ecosystem, the official closing price of an ETF is probably pretty far down the list. The closing price is the last price of the day, right? As it turns out, there was room for improvement...

A road warrior, now home bound—wholesaling during COVID-19

This pandemic has really changed the way we do business; being constantly on the go has switched to being stuck at home.

Overcoming factor fatigue and is it time to go International?

Factor investing may seem complicated due to the sheer number of products available, all with different nuances to their methodology.

5 Lessons I’ve Learned since launching LibertyShares ETF's

Ahmed Farooq reflects on some of the lessons he has learned since LibertyShares launched 3 years ago.

Did ETFs break down in this latest round of volatility?

Ahmed Farooq, VP of ETFs, looks at how the Canaidan ETF market did during a volatile March.

Discussing Corporate Credit: A Q&A with Portfolio Manager Adrienne Young

Ahmed Farooq interviews FLCI Portfolio Manager Adrienne Young.

Understanding Factor-based Investing

Factor based investing has received a lot of buzz over the past couple of years, but I still hear a lot of confusion when I speak to advisors about how to use them.

A cure for the headaches of fixed income investing

Why actively managed fixed income ETFs are gaining popularity.

Our Latest Building Blocks

The addition to our ETF platform is a continuation of this commitment—a suite of regional and country- specific passive ETFs that can be used within a diversified portfolio for low-cost, precise exposures.

Three Challenges Facing Passive Fixed Income Funds

We are on the tail end of a 30-year bull market for bonds. This unusual period of sustained growth was facilitated by both a low interest rate and low inflationary environment.

Get strategic with tax-loss harvesting

An overview of tax-loss harvesting.

Portfolio building blocks: Mutual Funds or ETFs? Should there be a dilemma?

Mutual Funds and ETFs aren’t quite as different as some advisors initially believe.

Are Smart Beta ETFs actually smarter?

When it comes to new ETFs entering the Canadian market place, Smart Beta strategies are continuing to offer some buzz to the industry.

Fixing fixed income - Are passive fixed income ETFs broken?

One thing that I consistently hear from the advisory community is that fixed income is not one of their key strengths.

What to launch next? An ETF provider's biggest dilemma!

Making Room in a Crowded ETF Space.

Factor based approach to Global Dividends, getting under the hood.

A deep dive into the dividend selection process.

Why investors should consider a global dividend strategy

We are only a few months into 2018 and already there are indicators that the benign financial environment investors enjoyed over the last few years is changing.

Go Global with our new lineup of ETFs

Over the past 5 years, I have had many conversations with advisors who say that their clients are looking to diversify their dividend strategy.

What Are the Risks?

Commissions, management fees and expenses may all be associated with investments in ETFs. Investors should carefully consider an ETF’s investment objectives and strategies, risks, fees and expenses before investing. The prospectus and ETF facts contain this and other information. Please read the prospectus and ETF facts carefully before investing. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. Performance of an ETF may vary significantly from the performance of an index, as a result of transaction costs, expenses and other factors. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Ahmed Farooq’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.