Tax is more important than alpha

/Tax is more important than alpha

Tax is more important than alpha

By | 2017-08-18T16:55:59+00:00 May 5th, 2013|Research Insights|19 Comments

Below is a snapshot from a marketing deck I’ve been working on.

I’m shifting the majority of my very limited brainpower into the field of tax-alpha and away from traditional alpha. Why? Because traditional alpha doesn’t matter anymore.

See below for a quick example. The hurdle for tax-inefficient alpha has become so high, a manager has to nearly double the returns on a risk exposure to add after-tax value.

The analysis below doesn’t even include state taxes. If you are in CA, NJ, or NY, these numbers are even uglier.

2013-05-06 16_04_51-tax_mgmt_v01

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

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About the Author:

Wes Gray
After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.