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SEI launches ground-breaking tax management structure for large cap mutual fund


SEI has announced a ground-breaking approach to its already successful Tax-Managed Large Cap Fund, intended to improve the Fund’s tax-management.

SEI will continue to serve as a manager-of-managers and oversee the sub-advisers responsible for recommending the purchase and sale of securities of the Fund. However, under the new structure, the sub-advisers will submit a model portfolio to an overlay manager. The overlay manager will be responsible for aggregating the model portfolios with limited authority, with a goal of decreasing the Fund’s overall tax exposure and providing greater after-tax returns for investors. Although SEI has used an overlay manager for its separately managed accounts since 2000, this represents the first time an investment company has implemented this type of tax-management structure in a multi-manager mutual fund.

This strategy reflects a growing interest in after-tax returns among financial advisors and investors. While historically tax management has been viewed as an end-of-the-year item, SEI’s new approach enables tax-sensitive investing throughout the year. In a recent SEI Quick Poll, more than three-quarters of financial advisors said that proactively managing for taxes is a key consideration when making investment decisions for clients. Additionally, advisors validated that tax management investing is a worthwhile strategy. Nearly one in three advisors said they can preserve an additional six percent of their clients’ wealth annually by managing for taxes.

"We’re proud to deliver another industry-first by offering mutual fund investors the same tax management structure that our separately managed account investors have appreciated for more than a decade," says Kevin Crowe (pictured), Head of Product Development for the SEI Advisor Network. "Given the uncertainty around taxes, investors are increasingly focused on overall investment returns on an after-tax basis. This approach truly takes tax-efficient investing to the next level within a mutual fund structure."

Traditionally, SEI’s Tax-Managed Large Cap Fund allocated only a portion of the Fund’s assets to a sub-adviser for more extensive tax management. Under this structure, the remaining assets of the Fund were not subject to the same degree of tax management. The new "overlay" structure allows the overlay manager to supervise the impact of the taxes for the entire Fund by implementing the model portfolios submitted by other sub-advisers. The overlay manager seeks to manage the impact of taxes by, among other things, selling stocks with the highest tax cost first, opportunistically harvesting losses, and deferring recognition of taxable gains, where possible.

"This is a true innovation and there is nothing else like it on the market. Given the heightened focus on taxes, it’s an appropriate time to launch this new investment structure. A tax-managed mutual fund will be a smart way for me to help clients keep more of what they earn from their investments," says Rich Graham of Eley-Graham Financial Services in Merrillville, Indiana. "As an advisor, this will be a real differentiator for me, as I will now be able to proactively offer my clients a leading-edge solution for a challenge facing every investor."

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