For investors with assets in active bond mutual funds, there has never really been a time to implement tax-loss harvesting. Tax-loss harvesting is the process of selling securities at a loss to offset capital gains tax due on the sale of other securities. Until this year, investors had mostly experienced gains in their fixed income holdings tracing back to the 2008-2009 financial crisis. However, due to significant losses in fixed income this year, an opportunity has arisen for investors to transition their assets to ETFs through tax-loss harvesting. According to Morningstar Direct data, US fixed income funds have seen more than $205 billion in redemptions during the first half of the year. Sales in taxable bond ETFs, on the other hand, while slowing, still generated $53.8 billion in net inflows during the same period. This has set the stage for tax-loss selling out of mutual funds and into ETFs.
Finsum: Losses in active bond funds this year sets the stage for tax-loss harvesting into fixed income ETFs.