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One ETF manager’s advice for navigating an era of potential tax hikes


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Monitor the market and control what you can control.

That’s what Dimensional Funds co-CEO Gerard O’Reilly is telling clients as the Biden administration considers implementing tax raises on capital gains, corporations and the wealthy, a move that could impact tax-managed investment strategies such as Dimensional’s.

The No. 1 thing for investors to consider is the market’s response to any potential tax hikes, O’Reilly told CNBC’s “ETF Edge” this week.

“If the market perceives that something will lower future cash flows to investors or increase discount rates, that will have an impact on prices,” O’Reilly, also his firm’s chief investment officer, said in the Monday interview.

Because such expectations are often already baked into market prices, the most constructive course of action is also the simplest, O’Reilly said: “The price is forward-looking. Don’t worry about it. Move on.”

Fund managers, investment advisors and individual investors alike must also remember what’s under their control in shifting market landscapes, the CEO said.

“You’ve got to look at whatever the tax code is at that point in time and then make sure you have the flexibility to be able to maximize after-tax returns,” O’Reilly said.

There’s a lot that you can do to help maximize your after-tax returns, whether it’s how you manage dividends, whether it’s how you rebalance … or the types of distributions that you get from funds,” he said. “A flexible approach allows you to adapt to changing tax code over time to make sure that whatever the tax code is, you make the most of it as an investor.”


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