I've only included the companies that I own. On this list are :ATZ, PLC, JWEL, NVEI, TSU, KXS, LSPD, WFG, TCN and BIP.UN. EQUITY RESEARCH
October 15, 2023 Industry Update
Tax-loss Selling Candidates - 2023 Window Of Opportunity
Our Conclusion
December 27 is the last day this year for tax-loss selling purposes. We find it
challenging to pick a precise date for tax-loss harvesting in any given year;
however, our historical studies dating back to 2004 show the bulk of the
decision making and trading associated with tax-loss events tends to be in
the fourth quarter of the year – for that reason, we often publish our tax-loss
candidates report during the month of October.
Our historical data analysis shows stocks that have declined by 20% or more
from their 52-week high (bear-marking) and also have a negative return YTD
to October 15 are likely to show more downside pressure and lag the
S&P/TSX index through to the first two weeks of December (tax-loss selling
period). The study also shows that the same candidates collectively tend to
positively mean revert and outperform in the following six weeks, offering
bargain hunters a window of trading opportunity – December 15 through to
January 31 of the following year.
Key Points
In this report, we are highlighting 51 tax-loss selling candidates for 2023, out
of which, six belong in the TSX-60 large-cap index – of note, all the
candidates also rank poorly in our technical matrix process (TSM score). In
our estimation, 11.4% of the TSX index (measured by market cap) is
susceptible to tax-loss selling pressure with higher count concentration in
Materials (35%, 2.6% mkt cap) and Utilities (15%, 2.1% mkt cap).
Comparatively, Telecoms are the heaviest market-cap weight on the tax-loss
ledger at 3.5%.
Our tax-loss selling period studies, that date back to 2004, show the qualified
tax-loss candidate pool (by our measures) posts a -2.27% return from the
middle of October through to the middle of December. By the same median
and mean measures, this pool also underperforms the benchmark TSX index
by over 200 bps at a 60% hit rate.
The flipside of the tax-loss period is the January effect (December 15
through to mid- or late January), during which the same tax-loss candidate
pool produces strong absolute and relative performance. Our yearly reviews
have showed that the same qualified tax-loss basket has returned over
+4.5% in absolute, or +200 bps of alpha over the TSX index at a rate of over
70% frequency of observations. In other words, another great window of
opportunity lies ahead with the tax-loss candidates.
Our previous tax-loss selling list publication in 2022 confirmed the qualifying
basket selection that underperformed TSX by 25 bps, albeit marginal.
Comparatively, the same qualified tax-loss basket in 2022 outperformed the
TSX index by over +200bps of alpha during December 15 through to
January month-end of 2023 – effectively, we are suggesting that investors
should look for opportunities from our tax-loss candidates