Mar ’23: Harvesting tax losses

March has been rather a wet month in London. Wet, and cold. This translates into the ski slopes in the French Alps (finally) having great conditions – sadly too late for me to enjoy.

Further north, it’s been a month of big change in Scotland. Nicola Sturgeon, the populist/nationalist leader north of the border, and one of the most formidable politicians in the UK, resigned in February. But March has seen her party, the SNP, in disarray. I don’t follow Scottish politics closely, but am no fan of nationalist parties and I regard March as a good month for Scotland and the UK.

Closer to home Rishi Sunak, the leader of the populist/nationalist party in England (still called the Tories but don’t let names mislead you), had a very good month thanks to his Windsor framework for improving/ameliorating the arrangements between Northern Ireland and mainland UK. Given that the problems here all arose from Brexit, which Sunak was an original supporter of, I am not minded to give him too much credit for this Windsor Framework. The new arrangements clearly lag the pre-Brexit arrangements. It grates to see Sunak championing N. Ireland’s advantages being a member both of the UK and of the EU, and until I see Tesla/similar set up a car factory in Northern Ireland I don’t think he fools anybody.

Another story that got a lot of coverage last month was how miserable the London Stock Exchange is. Versus the USA stock markets, the case is pretty unarguable. But the point that gets missed by all the UK coverage is that all the other major stock markets, such as Hong Kong, Australia, etc suffer from the same concern. A combination of its tech strengths and network effects have given the US what appears to be an unassailable lead. But somehow I consider the US has plenty of capacity for self harm, and the UK and EU are likely to sync up their financial markets more in the future, so I am more optimistic about London than the current media.

Market movements in March

In the markets, the key stories remain energy and inflation. Interest rates seem to be close to their peak, which has helped lift bonds and depressed the USD. Equities generally sagged, though tech stocks rose significantly – this combination left the US up, the UK down, and Europe/Australia somewhere in the middle.

My weighted index fell 0.5%, the net result of a constant currency increase in my portfolio value of 1.2% (bonds everywhere, plus USD equities) combined with foreign currencies dropping 1.6%.

My portfolio in March

Against my benchmark’s drop of 1.6%, my actual portfolio fell by exactly that too. Considering I started the month significantly leveraged, you’d have expected me to do worse.

Within my wider portfolio, I was helped by my Tech exposure. My Technology sub-portfolio in fact grew, in USD, by 20% in March – the combination of big tech/NASDAQ rising by over 10% and my quite high levels of leverage. Or this was just reversion to the mean, depending on your point of view. My Fixed Income sub-portfolio grew by 5% too, but is pretty tiny portfolio.

Crushing complexity

Since my 10 year review, I have been rationalising my portfolio yet further. I finish Q1 with 63 unique holdings in taxable accounts – a drop of 13. I’ve done this by deciding an aspirational simple portfolio for each account, comprising 6-8 holdings only – for example either VUSA or IUSA, but not both.

Even 63 feels like a lot; I have between 2 and 12 holdings in each cell of my asset/geography allocation. I can shrink this further, and will continue to do so. But already the portfolio feels a bit different – my portfolios in each account now generally fit on one screen, above the fold. And the number of dividends/etc I am tracking has dropped markedly.

Tax loss harvesting

The hammering bonds took in 2022 has left me with some significant capital gains tax losses to harvest. And the pruning I did to crush complexity enabled me to realise some significant losses.

I became disillusioned with index-linked bonds during the Tory’s Moron Moment in September, and have subsequently largely ditched INXG/GILI/similar in favour of IGLT/GILS/etc. This gave me significant capital losses.

At the same time I have sold a few ‘bouncing dead cats’ at a profit, so I also have some significant capital gains in the UK tax year (which ends 5 April, bizarrely), for example AMZN, GOOG and XRO.

But overall I have some significant losses on the books. So it’s time to take profits out of the US equities market in particular. I’ve closed my NASDAQ ETF, and my Fidelity USA Index fund – moving instead to an HSBC USA Equities ETF.

This is not an exact science. I don’t have a single place tracking my trades, so I end up having to tot up Interactive Brokers, and Quicken across both my and Mrs FvL’s accounts. And the occasional limit order filling unexpectedly dents the best laid plans. Directionally though, I’m in the right place.

Income and leverage

For Q1 I have been suspending my push to pay down my margin loan, in favour of hoarding cash ready for the new tax year – so that I can top up my ISAs as quickly as possible. March is a ‘big income’ month which has helped. I finish Q1 pretty close to my target allocation, except for borrowing less USD and more GBP/EUR. My leverage levels are close to target though and the short term priority will remain topping up ISAs (£40k in total, between me and Mrs FvL) for a little while yet.

Appendix – Media clippings

I’m capturing a few media frontpages below, for posterity’s sake.

Telegraph, 26 March 2023
Guardian, 26 March 2023
Spectator, 26 March 2023

2 thoughts on “Mar ’23: Harvesting tax losses”

  1. “my portfolios in each account now generally fit on one screen, above the fold”

    Just buy a bigger screen. You can afford it. Say a 40in 5k2k 21:9 Dell U4021QW. Perhaps two. Sounds like you are doing spreadsheets on a laptop. Should be made illegal plus it’ll ruin your eyes.

    Liked by 1 person

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