Tax Loss Harvesting? Why Active ETFs Can Help

The end of the year is approaching sooner than many investors and advisors may think. That means tax loss harvesting season is just around the corner, and for many market watchers, may already be here. Tax loss harvesting can provide some meaningful help to portfolios especially in a year as complicated as 2025 has been. Given the wash sale rule, many investors may want to move their assets to slightly different investments after sale, presenting a great opportunity for active.

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For those who may be looking seriously at harvesting losses for the first time, what does it entail – and why does it open up an opportunity for active? Let’s face it, most if not all investors have investments that have disappointed. Some have taken a loss, but even in losses one can find opportunity. By selling certain assets at a loss, one can lower an overall tax bill. As long as investors and advisors then avoid the wash sale rule – reinvesting those proceeds in a substantially similar asset – it’s a repeatable process that can really help end of year totals.

That reinvestment opportunity is where active ETFs can shine. Already, many investors have begun to migrate to active ETFs away from mutual funds and even other, passive ETFs. Reinvesting in a growth strategy in an active ETF wrapper can, if it has a sufficiently different strategy, meet that wash sale threshold. For those investors and advisors who have been wanting to make the active switch, tax loss harvesting could present a good moment to do so.

Active ETFs also, of course, marry active investing with the ETF’s tax efficient wrapper. Due to ETFs’ creation / redemption mechanism, they produce fewer taxable events compared to mutual funds. In mutual funds, the sale of an investors’ share creates an event for other investors. ETFs avoid that problem. Add in active investing flexibility and deep, fundamental research-driven scrutiny of investments, and the case gets stronger.

A fund like the T. Rowe Price Capital Appreciation Equity ETF (TCAF), for example, could fit the role. Managed by David Giroux and his team, the fund leans on fundamental research to meet its goal of long term capital appreciation. It charges a 31 basis point (bps) fee.

December 31st may be a few months away yet, but many are already considering which assets to sell. For those looking for a refresh already, active ETFs could be one intriguing area to consider.

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