Long/Short Extensions

The strategy is generally suited to taxable investors with meaningful unrealized capital gains, an aged direct indexing or legacy equity portfolio, or a concentrated single-stock position — and to the advisors managing those situations. Gateway's stated minimum for the strategy is $1,000,000.*

*Minimums are subject to change and may be waived at Gateway's discretion; custodians and prime brokers impose their own minimums, which vary by margin type. See Important Disclosures below.

Tax alpha describes the portion of an investor's after-tax return that comes from portfolio management decisions rather than market movement — principally the systematic realization of capital losses that may be used to offset realized gains. Because a long/short extension portfolio holds both long and short positions, it may find loss-harvesting opportunities in both rising and falling markets, whereas a long-only portfolio generally finds them only when holdings decline. Gateway does not provide tax advice; tax treatment and rates can and do vary over time, and investors should consult their own tax advisors.

In a 130/30 extension, the manager establishes short positions equal to roughly 30% of account value and reinvests the proceeds in long positions, bringing total long exposure to about 130%. Net equity exposure stays near 100%, so the account may continue to participate in equity markets while the additional long and short positions give the manager more room to tilt toward preferred factor characteristics and to realize capital losses. Gateway also offers 145/45, 175/75, and 200/100 tiers for investors who want more or less gross exposure.

Adding a short book can restore harvesting capacity. Over time, a direct indexing account tends to accumulate low-basis positions and exhaust its harvesting capacity, leaving an investor with a portfolio that has drifted from its benchmark and no longer generates meaningful tax benefit. A short book creates positions capable of generating losses independent of the appreciated long holdings, while systematic factor tilts on both sides pursue pre-tax alpha at the same time.

Gateway does not provide tax advice. Tax treatment and rates can and do vary over time. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her investment and/or tax advisors.

Rather than selling a concentrated holding outright and recognizing the full gain, an extension portfolio can be built around the position, using short exposures and, where appropriate, option overlays to reduce single-stock risk while harvested losses are applied against gains recognized as the position is reduced over time. The pace of diversification is set with the investor and their tax advisor.

Gateway does not provide tax advice. Tax treatment and rates can and do vary over time. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her investment and/or tax advisors.

Yes. An extension portfolio and an option overlay can be managed together in a single account, which may be appropriate where an investor is diversifying a concentrated position and wants to manage the risk of that holding while losses are harvested elsewhere in the portfolio. Gateway has managed index option-based strategies since 1977, so both sides of that combination are handled by the same firm.

No. Gateway's Long/Short Extension strategy is delivered as a separately managed account with no lock-up period. Investors own the underlying securities directly, assets are held at institutional custodians and prime brokers, and account balances, position summaries, and trade confirmations are available online through the custodian. The strategy is not a commingled fund and does not restrict withdrawals.

Short selling and leverage introduce risks a long-only portfolio does not carry, including the possibility that losses exceed the amount originally invested. A short position loses value as the shorted security rises, and gross exposure above certain levels generally requires a portfolio-margin arrangement with the custodian or prime broker. Gateway manages these exposures toward a target net exposure and monitors tracking error and factor tilts on an ongoing basis, but there is no assurance the strategy will achieve its objective. See Important Disclosures below.