Let’s talk about something that might not sound all that exciting: Taxes. While it may not be everyone’s favorite subject, it could make a serious difference in how much money stays in your clients’ portfolios.
If you’re working with clients who care about keeping more of what they earn (and who isn’t?), then tax alpha should be on your radar. And if you’re not already using direct indexing to boost it, you might be leaving even more of your clients’ money on the table.
In this article, we’ll dive into what tax alpha is, how direct indexing changes the game, and why Alphathena makes this approach more accessible than ever.
What Is Tax Alpha?
Tax alpha is a fancy way of saying: “How much better off are you after taxes because of smart investment decisions?”
It’s the extra value generated by actively managing a portfolio in a way that minimizes taxes, especially capital gains. And it’s measurable. You can compare the after-tax returns of a direct indexing portfolio to the after-tax returns of a traditional ETF or mutual fund benchmark. The difference? That’s your tax alpha.
In some cases, that difference can add up to 100–200 basis points per year, quite a meaningful boost to your client’s bottom line.
How Direct Indexing Supercharges Tax Alpha
Direct indexing opens up a whole new toolbox for optimizing taxes. Unlike ETFs or mutual funds that come with baked-in gains or distributions, direct indexing gives you full control over each individual holding. That means more opportunities to:
- Harvest losses: Sell underperforming securities to offset gains elsewhere.
- Avoid unnecessary gains: Skip selling winners just because a fund is rebalancing.
- Time trades smartly: Align with client-specific tax needs or preferences.
With Alphathena’s AI-powered platform, this isn’t just possible. It’s automatic.
Our system monitors portfolios daily and applies a loss-harvesting engine designed to balance risk while maximizing tax efficiency. It doesn’t just look at red numbers, but makes sure realized losses line up with actual tax benefits.
Why Direct Indexing Now? Why Alphathena?
In the past, direct indexing was a strategy generally used by ultra-high-net-worth investors. It took custom portfolios, high account minimums, and a team of analysts to pull it off.
Not anymore.
Thanks to modern platforms like Alphathena, direct indexing is now scalable, fast, and cost-effective. Our tech automates the heavy lifting, everything from tax-loss harvesting and rebalancing to portfolio customization using ESG or sector preferences. We even use fractional shares to make portfolios efficient at any account size.
This is where we shine. Alphathena is built to help financial professionals offer high-impact strategies, just like tax alpha via direct indexing, without needing a Ph.D. in quantitative finance.
A Quick Real-Life Example
Let’s say your client recently realized a large capital gain, perhaps from selling a business or property. Instead of passively accepting the tax hit, you implement a direct indexing strategy using Alphathena’s platform.
Throughout the year, Alphathena’s engine identifies and realizes losses in underperforming individual stocks within the portfolio; not just to reduce taxes in isolation, but to actively enhance the client’s after-tax return. These losses are used to offset gains, while the portfolio remains aligned to its original risk and return profile through smart reinvestment and risk controls.
That’s not just tax deferral or reduction. It’s tax alpha: the value-add created by turning tax-aware portfolio management into a source of long-term performance advantage.
That’s real money saved – and real value delivered.
Bottom Line: It’s Time to Get Strategic About After-Tax Returns
Direct indexing isn’t just a ‘nice to have’ anymore. It’s a smarter, more flexible way to invest, especially when your clients care about taxes, which they always do.
By leveraging direct indexing for tax alpha, you can deliver a strategy that’s personalized, powerful, and entirely within reach.Ready to see how Alphathena helps you put tax alpha to work for your clients?
Book a walkthrough to try the platform today.
