HOW IT WORKS

01 TMC is a separate account portfolio built to replicate the performance of a client-selected index (or benchmark). It is composed of a subset of securities selected to reflect key characteristics of the target index. For example, an S&P 500-targeting portfolio may hold approximately 250 stocks that would align closely with the industry, sector, capitalization distribution, and other important factors of the index.

02 By optimizing the portfolio to mirror the index and maintaining individual ownership of each security, the Parametric TMC portfolio gives the investor crucial flexibility. The account can be built around pre-existing securities, capital losses can be harvested, and a variety of investor preferences may be incorporated. By accepting slight pre-tax performance differences vs. the index, the TMC portfolio seeks to add significant after-tax value through delaying and avoiding taxes.

03 Portfolio rebalancing is conducted systematically throughout the year whenever (i) portfolio risk vs. its index exceeds guidelines, (ii) there are client contributions/withdrawals, or (iii) capital loss harvesting or gain management opportunities arise. In the case of loss harvesting, Parametric uses proprietary models and technology to realize capital losses when the tax benefit is material while keeping the portfolio closely aligned with its benchmark. Most importantly, realized losses can be used to offset gains from a variety of other sources including gains from other investment managers, rebalancing decisions, manager changes, or other capital transactions such as the sale of real estate.

04 Central to Parametric's TMC activity is responding to an investor's changing circumstances. Gifting and spending plans may be incorporated tax-efficiently, benchmark or preference changes implemented, and the portfolio may be structured to meet the particular needs of a trust or estate-planning vehicle.