Managing taxable investments

Curt Overway, CFA®

Co-Head, Natixis Investment Managers Solutions

ManagingTaxable Investments

Natixis Advisors, LLC does not provide tax or legal advice.Please consult with a tax or legal professional prior to making any investment decisions.

FOR FINANCIAL PROFESSIONALS ONLY

Natixis Investment Managers | Solutions

| FOR FINANCIAL PROFESSIONALS ONLY

Clients’ Biggest Personal Financial Fears

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How taxes may impact investments portfolio

Introduction

Investors Want Guidance in the Complicated Process of Managing Their Wealth

Source: Natixis Investment Managers, Global Survey of Individual Investors conducted by CoreData Research in February and March 2019. Survey included 9,100 individual investors in 25 countries, including 750 in the United States.

4.4%

7.1%

10.1%

15.6%

17.5%

18.4%

25.9%

34.7%

38.5%

48.5%

49.5%

0% 10% 20% 30% 40% 50% 60%

Education funding

Performance of my company

Job security

Accumulating debt

Real estate values

Cash flow

Not having enough money to save

Maintaining my standard of living

Taxes

Healthcare costs

Large unexpected expense



Quantifying the Cost of Taxes

• Explaining After-Tax Mutual Fund Performance²

– Equity investors in top tax brackets lost 2.2% annually to taxes (1981–1998)

– Risk, pre-tax performance, investment style and expenses are important determinants of future after-tax results

• The Value of Tax-Efficient Investments³– Investors in top tax bracket lost 1.84%

annually to taxes (1995–2005)

• Tax-Efficient Asset Management: Evidence from equity mutual funds⁴

– Higher tax burden funds do not exhibit superior before-tax performance

– The average long-term capital gains overhang is 10.3% historically

Academic research

• Taxable investors gave up between 1% and 2% of return to taxes

• Carryover losses are typically used within 2 years of downturn

• Historically taxes are at least as importantas fees

Lipper Analytics | Tax Study

How taxes may impact investments portfolios

2010 2000–2009¹

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1. Lipper Analytics 2010 Tax Study, Roseen, Tom, “Taxes in the Mutual Fund Industry - 2010,” Refinitiv, a Thomson Reuters company.2. Peterson, J.D., P.A. Pietranico, M.W. Riepe, and F. Xu, ”Explaining After-Tax Mutual Fund Performance.” Financial Analysts Journal, Vol. 58, No. 1 (January/February 2002).

Taylor & Francis Ltd, http://www.tandfonline.com & the CFA Institute, https://cfainstitute.org/. 3. Longmeier, G. and G. Wotherspoon, “The Value of Tax Efficient Investments: An Analysis of After-Tax Mutual Fund and Index Returns.” The Journal of Wealth Management, Fall 20064. Clemens, S. and Zhang, H., “Tax Efficient Asset Management: Evidence from equity mutual funds,” December 27, 2014



Impact of Tax Drag

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How Taxes May Impact Investment Portfolios

How taxes may impact investment portfolios

Growth of $100,000 (S&P 500®with 0%, 0.5%, 1% and 2% tax drag, 11/30/1995– 2/31/2020)

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.Tax drag is a measure of how much taxes reduce investment returns, after accounting for any tax liability generated by the investments. This tax liability can result from events such as capital gains, dividends and interest income. In this analysis we’ve assumed the top federal tax rates apply.

$984,385

$869,411

$767,827

$598,787

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000D

ec 9

5

Dec

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S&P 500S&P 500 with 0.5% tax dragS&P 500 with 1% tax dragS&P 500 with 2% tax drag



Deficits and TaxesHow taxes may impact investments portfolio

Ongoing budget deficits and recent stimulus spending have led to very high levels of government debt• Both on an absolute level and

as a percentage of GDP

• Debt as percentage of GDP is currently well above previous peak (end of WWII)

Increased government debt generally implies higher future tax rates

While difficult to forecast tax law changes, it is more likely that income and estate tax rates will increase than that they will decrease

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Tax Code Changes Being ConsideredOutlook for taxes?

Additional taxes onHigh earners

Increased marginal rate for high-income households

Higher capital gainstax rates

Changes to estate taxes/ step up in basis

Increase incorporate tax rates

Will the tax policy changes be retroactive?

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Investment Vehicle Comparison – Tax Implications

• Client establishes own cost basis ineach security

• Taxable events occur when underlyingsecurities are sold

• Gains AND losses

• Greater ability to gift highly appreciated securities

2. Separately Managed Accounts

• Required to distribute net income and capital gains at least annually

• Cost basis is shared with other investors inthe fund

• ETFs can minimize capital gain distribution through creation/redemption process

• Investors taxed on distributions & when fund shares are sold

1. Mutual Funds and ETFs

Managing taxable wealth

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Tax Loss Harvesting (and Gifting) OpportunitiesHow taxes may impact investment portfolios

Winners and losers in S&P 500® (12/31/1990–12/31/2020)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-100%

-75%

-50%

-25%

0%

25%

50%

75%

100%

1990

1991

1992

1993

1994

1995

1996

1997

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S&P

500®

annu

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turn

s

Perc

ent o

f pos

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mov

ers

vs.

nega

tive

mov

ers

in th

e S&

P 50

0®

Positive movers Negative movers Index return Avg. positive movers Avg. negative movers

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.Source: Thomson Reuters and Standard and Poor’s

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Equity Mutual Fund Distribution Trends 1991–2020Managing taxable wealth

Equity mutual fund history: capital gain distribution ratio

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.Note: Distribution ratios are calculated by dividing total equity mutual fund capital gains distributions by year-end net assets for each year. Sources: Investment Company Institute 2021 Factbook and Natixis Investment Managers Solutions.



Equity Mutual Fund Distribution Trends 1991–2020Managing taxable wealth

Equity mutual fund history: capital gain distribution ratio

10

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2000‒9%

2001‒12%

2002‒22%

2008‒37%

2018‒4%

Performance data shown represents past performance and is no guarantee of, and not necessarily indicative of, future results.Note: Distribution ratios are calculated by dividing total equity mutual fund capital gains distributions by year-end net assets for each year. Sources: Investment Company Institute 2021 Factbook and Natixis Investment Managers Solutions.

S&P 500® negative calendar year returns



Unified Managed AccountsManaging taxable income

• Overlay manager receives modelfrom subadvisors

– Implements strategies based on model portfolio provider instructions

– Customizes client accounts as needed

• Overlay manager serves as discretionary manager on client portfolios

• Overlay manager can coordinate activity across entire portfolio

– Increased opportunities for tax management

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Overlay Manager

Manager 1 Manager 2 Manager 3 Manager 4

Individual client

portfolios

Types of SMA StrategiesManaging taxable wealth Natixis Investment Managers | Solutions

12 | FOR FINANCIAL PROFESSIONALS ONLY

• Actively managed• Seek to outperform benchmark

• Typically, model portfolio based

• Client owns individual stocks in managed account

• Direct Index• Seek to track index performance pre-

tax but outperform after taxes

• Highly customized – each account managed individually

• Client owns individual stocks in managed account



Direct Indexing – Industry Trends

• Increased coverage in general media including WSJ, CNBC, Forbes, US News

• Product launches and M&A activity– Vanguard/Just Invest

– Morgan Stanley/Eaton Vance

– Blackrock/Aperio

– Schwab

12.40%11.30%

9.60%

3.30%

Direct Indexing ETFs SeparateAccount

Programs

Mutual Funds

Projected 5-Year Growth Ratesby Product

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Source: Cerulli Associates



Direct Indexing – ApplicationsManaged Account Sponsors’ Assessment of the Opportunities for Direct Index Customization, 2021

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Source: Cerulli Associates

Analyst Note:Sponsors were asked to stack rank opportunities for direct indexing on a scale of 1 to 6. Sponsors’ top-ranked attributes are shown as Major Opportunities while Moderate Opportunities represent their second-andthird-ranked choices.

16.1%

35.5%

48.4%

12.9%

16.1%

35.5%

38.7%

45.2%

51.6%

Major Opportunity Moderate Opportunity

Ongoing tax optimization (through an overlay portfolio manager and/or an algorithmic process)

Tax management for accounts that are transitioning

Environmental, social and governance (ESG) factors

Factor investing (tilting portfolio toward momentum, value, low volatility, or income)

Thematic Portfolio (portfolios tailored to specific investment themes)

Excluding industry sector



Conclusions

Taxes have had a material impact on investor returns even during times of historically low tax rates

Opportunities to maximize after-tax returns vary by investment vehicle type (mutual fund vs. ETF vs. SMA)

There are a number of techniques that can be employed throughout the investor lifecycle that may increase the after-tax return

Tax management should be considered at every step of the financial planning, portfolio construction and management process

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APPENDIX

Disclosures

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The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice.There can be no assurance that developments will transpire as forecasted. Actual results may vary.

This document may contain references to third party copyrights, indexes, and trademarks, each of which is the property of its respective owner. Such owner is not affiliated with Natixis InvestmentManagers Solutions or any of its related or affiliated companies (collectively “Natixis”) and does not sponsor, endorse or participate in the provision of any Natixis services, funds or other financialproducts. The index information contained herein is derived from third parties and is provided on an “as is” basis. The user of this information assumes the entire risk of use of this information. Each ofthe third party entities involved in compiling, computing or creating index information disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness,timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to such information.

All investing involves risk, including possible loss of principal. Please read the risks associated with each investment prior to investing. Detailed discussions of each investment’s risks are includedin Part 2A of each firm’s respective Form ADV. The investments highlighted in this presentation may be subject to certain additional risks.

Performance data quoted represents past performance and is no guarantee of future results. Indexes are unmanaged, do not incur fees, and include reinvestment of dividends and interestincome, if any. It is not possible to invest in an index.

Every situation is unique and this does not constitute tax advice. Please consult with your tax advisor.

Future tax rates and rates of return are unknown and will affect your personal outcome. All investments are subject to risk of loss. While we make every effort to ensure that our computations andgraphs are accurate, we make no guarantees of the numbers contained herein.

The index information contained herein is derived from third parties and is provided on an “as is” basis. The user of this information assumes the entire risk of use of this information. Each of thethird party entities involved in compiling, computing or creating index information disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness,timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to such information.

Natixis Advisors, LLC provides advisory services through its division Natixis Investment Managers Solutions. Advisory services are generally provided with the assistance of model portfolioproviders, some of which are affiliates of Natixis Investment Managers, LLC. Natixis Advisors, LLC does not provide tax or legal advise. Please contact with a tax or legal professional prior tomaking any investment decisions.

Copyright © 2021 Natixis Advisors, LLC – All rights reserved

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To learn more about Natixis Investment Managers Solutions Direct Indexing Strategies,please contact our Sales Desk. Call 800-862-4863 3881675.1.1

Exp. 3/31/2022

Thank you

Natixis Advisors, LLC does not provide tax or legal advice.Please consult with a tax or legal professional prior to making any investment decisions.

Thank you for joining our webinar today. For more informationvisit im.natixis.com

Curt Overway, CFA®

Co-Head, Natixis Investment Managers Solutions

https://www.im.natixis.com/us/home

Managing taxable investments

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