Active Tax Indexing is a direct indexing strategy that gives clients ownership of the securities in an index, enabling continuous, security-level tax management while seeking to closely track the chosen benchmark and improve after-tax outcomes.
Get in TouchTax optimization happens continuously — harvesting losses and reinvesting to maintain benchmark exposure while potentially offsetting gains elsewhere in the portfolio.
Clients own the underlying securities, not a fund. That ownership is what makes security-level tax management possible — and what enables the customization, restriction, and values-based screening that pooled vehicles cannot accommodate.
Most platforms run tax management on a monthly, quarterly, or annual schedule. Concentric accounts are evaluated and rebalanced multiple times per week, and as often as daily depending on market movement — identifying and acting on opportunities that a less frequent process could miss.
Existing stocks, ETFs, and mutual funds can be transferred in-kind, allowing clients to transition into Active Tax Indexing while mitigating taxable gains at inception. From there, legacy positions are managed tax-efficiently toward the target portfolio over time.
Clients can define the maximum amount of net capital gains they are willing to realize in a given year. That budget governs the optimization process — giving advisors and their clients control over the targeted tax outcome, not just a general preference.
Begin with existing investments transferred in-kind or funded with cash.
Monitor individual securities for loss harvesting opportunities.
Realize losses that may potentially offset gains elsewhere.
Reinvest in a similar security to maintain benchmark exposure.
Keep portfolio aligned with the benchmark and manage tracking error.
Realized losses may offset gains that have the potential to reduce the client's overall tax liability.
Align the portfolio with a client's values while maintaining index-like exposure*. We apply 50+ values-based screens across sectors, companies, and industries — and accommodate personal circumstances such as stock restrictions — while maintaining the tax management discipline of the core Active Tax Indexing strategy. Screens are applied continuously and updated regularly.
Seek to outperform the benchmark by tilting toward one or more factors — quality, income, and others as requested — while maintaining reasonable tracking error. Our platform seeks to optimize simultaneously for factor exposure, tax efficiency, and transaction costs.
Direct indexing offers capabilities that pooled vehicles cannot match. The comparison below reflects the structural differences between each approach across the dimensions that matter most to taxable investors.
| Passive Mutual Funds | ETFs | ACTIVE TAX indexing | |
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| Tracks a market index |
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| Tax efficiency |
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| Potential for tax alpha |
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| Customized transition strategy |
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| Individual security ownership |
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| Values-based screening |
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| Ability to fund in-kind |
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Tax alpha refers to the potential value that may be created through the effective tax management of investments relative to an underlying index. Tax alpha is not guaranteed and will vary based on individual circumstances, market conditions, and the specific tax situation of each client.
*Client-selected constraints can result in deviations from expected tracking error.
Active Tax Indexing is one of Concentric's four core capabilities. Let's discuss how it could apply to your practice or specific client situations.