How is Tax Efficiency calculated (the Tax Profile panel)?

The Tax Profile (Est.) panel in the Strategy View's Return Statistics shows how tax-friendly a strategy's trading actually is - how much of what it earns gets turned into taxable gain, how much of that qualifies for the favorable long-term rate, and how much is simply left to compound untaxed.

Rather than guessing from turnover, we run a realization-based simulation of what a real account would have done, using FIFO tax lots:

1. Each month's target weight changes are converted into purchases and sales. Every purchase opens a lot carrying its own share count, cost basis, and acquisition date.
2. Sales consume lots oldest first, so a single sale can produce both a long-term and a short-term piece, exactly as it would on a 1099-B.
3. Each piece is classified by that lot's own age. Long-term requires holding for more than one year, so a position sold on its twelve-month anniversary is short-term. This matters more than it sounds: strategies built on 12-month momentum signals frequently hold for exactly twelve months.
4. Distributions are separated out before any of this. Interest and dividends are income, not capital gain, so they never enter the lot accounting (see the Taxable Account FAQ).
5. At the end of the selected window, any position still held is marked as if liquidated that day and reported separately as deferred. It is not treated as a sale.

What the panel reports

For the date range you have selected:

• ST lots (≤12 mo) / LT lots (>12 mo) - how many individual tax lots were realized in each bucket
• ST / LT avg hold - average holding period in months for each bucket
• ST / LT gains / yr - the average share of portfolio value turned into taxable gain each year, measured against the balance at the time of each sale. A strategy showing 7% ST gains / yr converts about 7% of its value into short-term gain annually.
• Deferred (unsold) - the embedded gain sitting in positions you still hold. Nothing is owed on it until you sell.
• Gold at 28% cap - appears only when a strategy holds bullion trusts such as GLD or SGOL. Shown two ways: as a share of long-term gains, which is what the collectibles rate actually applies to, and as a share of all gains, which is usually much smaller.
• LT Gains % - the share of gross gains that were long-term

A higher LT Gains % means more of the strategy's gains get the favorable long-term rate. Lower ST gains / yr means less is being handed to the IRS each year in the first place.

Reading the numbers

• Gains / yr figures are rates, not totals. They answer "how much of my balance becomes taxable each year", which stays readable over a forty-year history. A cumulative total would not.
• Lot counts can exceed the number of trades made. FIFO splits one sale across however many lots it touches, and the end-of-window mark adds an entry for each position still open.
• Tiny weight changes are ignored. Movements below 0.1% of portfolio value are treated as accounting noise between the strategy return series and the underlying ETF returns rather than as trades. Their gain is still counted; they just do not inflate the lot counts.
• A dash instead of a percentage means the strategy booked no gross gains at all in the window. That is different from having too little data, which shows an explicit "Not enough data" message.
• The gold percentages will differ sharply from each other. A strategy can show "67% of LT" and "0% of all" when its long-term bucket is nearly empty. The long-term figure is the one that drives the tax; the other exists to stop the first being misread.

How this relates to the Taxable Account toggle

The toggle uses the same simulation, but it runs over the strategy's entire history, not the date range selected here.

The panel is window-scoped; the toggle is not. So the LT Gains % displayed here is often not the exact split being applied to your after-tax returns, and narrowing the date range will change this panel without changing the tax being charged.

Limitations to be aware of

• The panel needs at least 12 months of allocation data in the selected range; with less it shows "Not enough data" rather than a misleading number.
• Blended (custom) portfolios are analyzed from their net ETF weights. When two sleeves trade the same ticker in opposite directions, those offsetting trades net out and may be under-counted, so blended results are a slight approximation.
• Distribution yields are estimates. Each ticker carries a published income character and yield, and rate-sensitive holdings track the prevailing short rate rather than a fixed figure. These are good approximations, not a record of what any particular fund actually paid.
• This is an estimate of a strategy's tax character, not a projection of your actual tax bill. It models no wash sales and no lot-selection choices a real investor or broker might make.