Turn volatility into opportunity

Key Takeaways

• The April 2 announcement of higher-than-expected tariffs set off a bout of severe market turbulence resulting in S&P500® declining by roughly 10%¹ from April 3 through April 7.
• Aperio Direct Indexing accelerated its loss-harvesting program during the turbulent period, leading to substantial benefits for its clients with realized capital gains.
• The increased gross exposure of long/short loss harvesting strategies generally led to outsized benefits for investors with ample short-term gains.

During the first three full trading days of the volatility that began with the announcement of the tariffs, Aperio Direct Indexing executed over 1.3 million trades in roughly 3700 separate accounts, generating more than $164 million in harvested losses. As a baseline, we harvested a total of $121 million in losses during the entire month of January. While losses can be devasting, they may be valuable to taxable investors who have capital gains elsewhere in their portfolios, as has been demonstrated in empirical studies.

A performance highlight is provided by our long/short tax-aware strategies which we launched in January 2023. The leverage in these strategies materially increases an investor’s gross exposure to the market, leading to substantially greater loss-harvesting capabilities. During the first three trading days after the tariff announcements, roughly 19% of the $164 million in realized losses was generated by long/short portfolios, which account for a much smaller percentage of our $110 billion in equity under management.

Realized losses are the lifeblood of tax-aware investing. When they are harvested by direct indexing in a separately managed account (SMA), an investor may benefit by using realized losses to offset capital gains elsewhere in their portfolio. This generates a financial tax benefit, the amount by which realized losses may lower an investor’s tax bill. In the three trading days since the tariff volatility began, Aperio Direct Indexing delivered more than $74 million in tax benefit to our clients. This exceeds the tax benefit of approximately $55 million delivered in the month of January.

Loss harvesting strategies are option-like. They provide value when the market price of an asset falls below its original purchase price, which acts as a strike price. Many option-like strategies, including loss-harvesting, tend to increase in value as turbulence increases, since turbulence makes the chances that the market price will breach the strike price. This explains, in part, the phenomenal performance of Aperio Direct Indexing strategies amid the tariff volatility.

Bouts of market turbulence may feel unsettling as they unfold, but they are endemic to financial markets. While we cannot predict the timing or duration of turbulence, it can provide material advantages to well-positioned investors. Loss harvesting in an SMA may provide substantial financial benefit to a taxable investor with realized capital gains currently in their portfolio or the expectation of capital gains in the future. Over the last few years, the adoption of loss-harvesting strategies in public equities has grown appreciably. This has led to more varied offerings, including tax-aware active strategies, and greater customization to investors’ needs and wishes. The performance of tax-aware strategies in the 2025 tariff volatility provides concrete evidence of the value of loss harvesting. To learn more about direct indexing and tax-aware investing, visit the Aperio Direct Indexing page.

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