Method and computer program for tax sensitive investment portfolio management

• US 20050234793A1
• Filed: 03/26/2004
• Published: 10/20/2005
• Est. Priority Date: 03/26/2004
• Status: Active Grant

• Current Assignee: UBS Business Solutions AG (UBS Ag)
• Original Assignee: UBS Ag
• Inventors: Staub, Renato
• Granted Patent: US 8,001,029 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

Methods and corresponding systems are provided for managing investment portfolios that includes the steps of identifying at least one security of the investment portfolio to be sold during rebalancing of the investment portfolio, and rebalancing or deferring rebalancing of the investment portfolio based at least in part on a rebalancing threshold for short-term capital gains or losses, investor specified or otherwise. If an implied total short-term capital gain or loss, e.g., a loss or gain that would occur if the at least one security were sold, falls within the rebalancing threshold rebalancing occurs, otherwise rebalancing is deferred for a later time.

Claims

1. A method for managing investment portfolios comprising:

identifying at least one investment portfolio security to be sold in connection with a rebalancing of the investment portfolio; and

rebalancing the investment portfolio if a short-term capital gain or losses, which would result from the rebalancing of the investment portfolio, falls within a threshold for short-term capital gains or losses.

2. The method of claim 1, wherein the at least one security to be sold is identified based on a difference between securities in the investment portfolio and a target portfolio.

3. The method of claim 2, wherein the at least one security to be sold is identified by allocating at least one security to be sold to at least one tax lot associated with the at least one security to be sold and computing an implied total short-term capital gain or loss that would result from the sale of the at least one security to be sold from the at least one tax lot.

4. The method of claim 1, comprising identifying a plurality of securities to be sold in connection with the rebalancing of the investment portfolio based on a difference between securities in the investment portfolio and a target portfolio.

5. The method of claim 4, wherein the plurality of securities to be sold are identified by allocating the securities to be sold to at least one tax lot associated with the securities to be sold and computing an implied total short-term capital gain or loss that would result from the sale of the plurality of securities from the at least one tax lot.

6. The method of claim 5, wherein the plurality of securities to be sold are allocated to at least one tax lot associated with the securities to be sold based on at least one allocation strategy selected from the group consisting of:

allocating the securities to be sold beginning with an earlier tax lot of a plurality of tax lots and proceeding to a later tax lot; and

allocating the securities to be sold beginning with a tax lot of a plurality of tax lots having a higher cost basis and proceeding to a tax lot with a lower cost basis.

7. The method of claim 5, wherein the plurality of securities to be sold are allocated randomly to a plurality of tax lots.

8. The method of claim 1, comprising identifying a plurality of securities to be sold in connection with the rebalancing of the investment portfolio based on a difference between securities in the investment portfolio and a target portfolio, the plurality of securities identified by allocating randomly, a plurality of times, the securities to be sold to a plurality of tax lots associated with the securities to be sold, computing an implied total short-term capital gain or loss that would result from the sale of the plurality of securities to be sold in accordance with each of the random allocations, and selecting from the plurality of random allocations one of the allocation that results in the smallest implied short-term capital gain or loss, and the allocation that most closely matches a pre-set targeted short-term capital gain or loss.

9. The method of claim 1, comprising rebalancing the investment portfolio if a total short-term capital gain or loss for the year, which would result from the rebalancing of the investment portfolio, falls with a threshold for short-term capital gains or losses.

10. The method of claim 1, wherein the threshold for short-term capital gains or losses is about 2% of the value of investment portfolio'"'"'s assets.

11. The method of claim 1, wherein the threshold for short-term capital gains or losses is defined by an investor.

12. A method for managing investment portfolios comprising:

determining a difference between securities in the investment portfolio and a target portfolio;

identifying a plurality of securities to be sold based on the determined difference;

allocating randomly, a plurality of times, the securities to be sold to a plurality of tax lots associated with the securities to be sold;

computing an implied total short-term capital gain or loss that would result from the sale of the plurality of securities to be sold in accordance with each of the random allocations;

selecting from the plurality of random allocations the allocation that results in the smallest implied short-term capital gain or loss; and

rebalancing the investment portfolio if the implied short-term capital gain or loss for the selected random allocation falls within a threshold for short-term capital gains or losses.

13. A system for managing investment portfolios comprising at least one computing device having software associated therewith that when executed performs a method comprising:

identifying at least one investment portfolio security to be sold in connection with a rebalancing of the investment portfolio; and

rebalancing the investment portfolio if a short-term capital gain or loss, which would result from the rebalancing of the investment portfolio, falls within a threshold for short-term capital gains or losses.

14. The system of claim 13, wherein the method comprises identifying a plurality of securities to be sold in connection with the rebalancing of the investment portfolio based on a difference between securities in the investment portfolio and a target portfolio.

15. The system of claim 14, wherein the plurality of securities to be sold are identified by allocating the securities to be sold to at least one tax lot associated with the securities to be sold and computing an implied total short-term capital gain or loss that would result from the sale of the plurality of securities to be sold from the at least one tax lot.

16. The system of claim 15, wherein the plurality of securities to be sold are allocated to at least one tax lot associated with the securities to be sold based on at least one allocation strategy selected from the group consisting of:

allocating the securities to be sold beginning with an earlier tax lot of a plurality of tax lots and proceeding to a later tax lot; and

allocating the securities to be sold beginning with a tax lot of a plurality of tax lots having a higher cost basis and proceeding to a tax lot with a lower cost basis.

17. The system of claim 15, wherein the plurality of securities to be sold are allocated randomly to a plurality of tax lots.

18. The system of claim 13, wherein the method comprises identifying a plurality of securities to be sold in connection with the rebalancing of the investment portfolio based on a difference between securities in the investment portfolio and a target portfolio, the plurality of securities identified by allocating randomly, a plurality of times, the securities to be sold to a plurality of tax lots associated with the securities to be sold, computing an implied total short-term capital gain or loss that would result from the sale of the plurality of securities to be sold in accordance with each of the random allocations, and selecting from the plurality of random allocations the allocation that results in the smallest implied short-term capital gain or loss.

19. The system of claim 13, wherein the method comprises rebalancing the investment portfolio if a total short-term capital gain or loss for the year, which would result from the rebalancing of the investment portfolio, falls with a threshold for short-term capital gains or losses.

20. The system of claim 13, wherein the threshold for short-term capital gains or losses is about 2% of the value of investment portfolio'"'"'s assets.

21. The system of claim 13, wherein the threshold for short-term capital gains or losses is defined by an investor

22. A system for managing investment portfolios comprising at least one computing device having software associated therewith that when executed performs a method comprising:

determining a difference between securities in the investment portfolio and a target portfolio;

identifying a plurality of securities to be sold based on the determined difference;

allocating randomly, a plurality of times, the securities to be sold to a plurality of tax lots associated with the securities to be sold;

computing an implied total short-term capital gain or loss that would result from the sale of the plurality of securities to be sold in accordance with each of the random allocations;

selecting from the plurality of random allocations the allocation that results in the smallest implied short-term capital gain or loss; and

rebalancing the investment portfolio if the implied short-term capital gain or loss for the selected random allocation falls within a threshold for short-term capital gains or losses.