A long and short building symbolizing the long/short tax-aware strategy

Long/Short Tax-Aware Strategies

Go beyond traditional portfolios by putting more capital to work with flexible, tax-managed investing.

What is Long/Short?

A Long/Short strategy invests in securities expected to appreciate while simultaneously shorting securities expected to decline. By combining long and short exposure, advisors can separate market beta from alpha generation, expanding portfolio flexibility beyond traditional long-only investing.
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Benefits of Long/Short with BlackRock

Tax-aware implementation

Long/short may create more opportunities to harvest losses¹, helping clients manage taxes as portfolios grow or markets shift.

Real-time risk management

For clients with concentrated stock positions, long/short may help diversify portfolios in a tax-aware way without creating unnecessary gains.

Pre-tax alpha potential

Long/short can be used to implement active factor strategies in a tax-aware way, helping clients pursue increased return potential.

Solving real portfolio challenges with Long/Short

From concentrated stock to ossified portfolios, Long/Short can help advisors respond to complex client challenges with greater flexibility.

Concentrated stock exposure Upcoming liquidity event Appreciated portfolio
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Do you have concentrated stock risk in one or more stocks?

Scenario

A client has worked at Apple for years and an outsized portion of their wealth is now in low basis company stock.

Challenge

Market volatility can heighten concentrated stock risk. The client wants to reduce risk while staying invested, but selling outright could trigger meaningful capital gains taxes.

How Long/Short helps

A Long/Short strategy may help reduce concentrated equity risk and support a more gradual, tax-aware path toward diversification.
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Are you planning for an upcoming liquidity event?

Scenario

A business owner or executive expects a sale, payout, or other liquidity event that may create a significant taxable gain.

Challenge

The client wants to build and maintain a diversified long-term portfolio while preparing for the potential tax impact of a liquidity event.

How Long/Short helps

A Long/Short strategy can help preserve market exposure, may offer additional return potential and create opportunities to harvest losses ahead of a liquidity event.
Read the case study here

Do you have a highly appreciated portfolio?

Scenario

A client has held a taxable equity portfolio for years. The portfolio has appreciated significantly and now offers fewer opportunities to rebalance and harvest losses.

Challenge

Reduced flexibility may limit the ability to maintain desired market exposure and pursue long-term growth in a tax-aware manner.

How Long/Short helps

Layering in long/short exposure may help restore portfolio flexibility without fully disrupting appreciated holdings and expand the opportunity set for tax-loss harvesting.

Key considerations for Long/Short

Tax-aware Long/Short strategies are designed for investors who are comfortable with the additional complexity of margin and short selling, understand the related tax implications and seek enhanced return potential. As with any investment strategy, suitability should be evaluated in the context of:

Investment goals

Investors should be comfortable with active risk, benchmark-relative performance variability, and a sufficiently long investment horizon.

Risk management

Investors must be willing and financially able to accept the additional risks, costs, and operational complexity associated with margin and short selling.

Tax management²

Long/Short strategies may be suitable for investors seeking tax-aware implementation, who have ongoing or anticipated capital gains and a longer investment horizon.

A lifecycle approach to tax-managed investing

BlackRock can help advisors evaluate how a client’s portfolio should evolve over time, from Direct Indexing, to Long/Short strategies, to deleveraging when appropriate. This connected approach may help reduce concentration risk and support long-term diversification in a tax-aware manner as clients’ needs change.
Image showing lifecycle of long/short from direct indexing to deleveraging

Connect with an SMA specialist

If you are a financial advisor, you can sign in to schedule a meeting with one of our SMA specialists. They can review available SMA strategies, portfolio customization capabilities, and generate client-friendly sample portfolios.
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FAQs

  • A tax-managed Long/Short strategy can be thought of as an extension to a traditional long-only portfolio. A Long/Short SMA seeks to provide exposure to selected factors while enhancing pre-tax and after-tax return potential. By combining long and short positions, the strategy may also expand on the benefits of long-only tax-managed SMAs by creating additional loss-harvesting opportunities in both up and down markets.

  • Investors may consider Long/Short strategies when they face portfolio challenges such as concentrated exposure, limited loss-harvesting opportunities, or upcoming liquidity events. These strategies are often used alongside traditional stock and bond allocations to introduce differentiated return potential, including the opportunity for investment alpha, while adding greater portfolio flexibility.

  • Long/short investing can provide several potential portfolio benefits, including diversification beyond traditional exposure and risk management during market volatility in a tax-minded manner. The strategy may also help investors access differentiated sources of return within a diversified portfolio.

  • Long-only investing seeks returns by buying securities expected to increase in value. Long/Short strategies expand on this approach by also shorting securities expected to decline. This allows portfolio managers to pursue returns from both rising and falling securities while potentially improving diversification and reducing reliance on overall market direction.

  • Tax-aware Long/Short strategies may be appropriate for taxable investors seeking to address complex portfolio challenges, such as concentrated stock positions, highly appreciated assets, or anticipated taxable events, while maintaining market exposure and creating additional opportunities for tax-loss harvesting.

  • Not necessarily. Tax-aware Long/Short strategies should be evaluated alongside a client s overall financial plan, risk tolerance, liquidity needs, tax circumstances, and investment goals. In some cases, other approaches, such as direct indexing, option overlays, ETFs, or a combination of solutions, may be more appropriate.