As the leaves turn, the time has come again to consider the merits of tax loss harvesting troublesome stocks and holdings — even those that we still want to hold. With the FAANGs down YTD in amounts ranging from -69.5% at worst for Meta Platforms Inc. (META) to -21.07% in the best case for Apple Inc. (AAPL), tax loss harvesting should be on the table as an option.
It’s been a difficult year for tech stocks overall as the market has been roiled by inflation, geopolitical chaos, rising rates, and ongoing aftershocks from pandemic lockdowns both in the West and in China. The FAANG stocks comprise approximately 23% of the total market cap of the S&P 500, and they haven’t been exempt from those market challenges, almost certainly making them a question mark in many portfolios.
The increasingly popular approach of tax loss harvesting involves taking a capital loss on a given holding, selling at a lower value than the cost basis, “gathering” that loss, and investing the proceeds back into another security, stock, or bond.
To avoid triggering the wash rule, which in summary tells investors that they cannot invest revenues from a security sale at a loss back into that same security within 30 days of the sale, an investor can consider ETFs that hold multiple members of the FAANGs.
For example, consider the merits of the Fidelity MSCI Communications Services Index ETF (FCOM ) and the Pacer Trendpilot 100 ETF (PTNQ ). FCOM holds three of the total FAANGS, tracking the MSCI USA IMI Communication Services 25/50 Index and charging just eight basis points.
FCOM holds the Alphabet Inc. Class A (GOOGL) and Class C stocks (GOOG) at weights of 12.19% and 10.98% respectively. FCOM also holds META at 10.65% weight and Netflix (NFLX) at 4.8%, returning 0.71% more than the ETF Database category average over the last month, with $18.1 million in net inflows for the last three months.
PTNQ, meanwhile, holds all five of the FAANGs, with AAPL at 6.5%, Amazon.com Inc. (AMZN) at 3.3%, GOOG and GOOGL at 1.73% and 1.66% respectively, META at 1.3%, and NFLX at a smaller 0.6%.
The ETF tracks the Pacer NASDAQ-100 Trendpilot Index and charges 65 basis points, returning 1.3% more than the ETF Database category average over one month and 0.85% more over three months, bringing in $13.5 million over a three-month period.
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