Last week we were looking for risk-off, with some calls to protect against a surprise to the upside.
I'm comfortable being flat risk to slightly long as we start the week.
I expect November Consumer Price Index (CPI) data to be in line with expectations, letting the Fed continue to talk about the end of hikes. There are seven weeks between this week's Fed meeting and the next. We will explore the Fed meeting later once we get the CPI data.
In the meantime I'm focused on tax-loss harvesting, particularly for my closed-end funds.
My portfolio is slightly up this year -- well off the highs it hit early in the year, but back up from early September.
I'm not worried about long-term capital gains. I'm OK with the tax rate there.
I'm focused on reducing my realized gains and think my muni closed-end funds portfolio is the best place to do that.
It is one part of my portfolio that has losses. I have liked the muni closed-end fund space throughout most of the year and continually have been buying (up until September or so for myself). My overall position is underwater, but after the recent rally I have positions that are both up and down money.
I'm selling some of the biggest percentage losers I bought this year. I want the short-term loss. The nice thing about the closed-end fund space, on the muni side, is there are plenty of other ones to invest in. I want to keep my overall exposure about the same, so I will be selling some muni closed-end funds to buy others, which should not trigger a wash sale.
It is interesting that these losing positions have paid tax-free dividends in the meantime, so the losses aren't as bad in real life as they are on paper, but we get that benefit.
I'm doing my own due diligence on funds. I generally like high discount to net asset value (NAV), many of which exist. I prefer larger funds from better-known managers. I'm a little wary of leverage here, so I will be steering half the proceeds into non-leveraged closed-end funds. Lower dividend yields, but we've had a nice run so I don't mind scaling back on risk. We can always shift around in the months ahead if we want to be really aggressive.
I am more comfortable on the Treasury yield component (though that has come in a lot) than I am on the spread/muni risk component; spreads could tighten further, but I'm a little nervous here, though more nervous on corporate and high-yield spreads than munis as those tend to be more correlated to the stock market.
On the leveraged loan closed-end fund side of the equation, I've been scaling back and will harvest more tax losses here, but will largely be taking money off the table. I'm thinking 3-to-1 is a good ratio of selling to buying in this space right now.
Master limited partnerships (MLPs) are getting back on my radar as well. I shed a lot of energy/commodity exposure. While I'm still bearish those sectors as a whole -- I'm expecting a recession to hit sooner and deeper -- this could be an area to start nibbling at again.
There are some MLP closed-end funds, too, trading at big discounts, but I need to take a closer look at their holding. I generally use the larger ETFs. Individual stocks might be the best way to go (and I hold some) because of the relatively high expenses in the MLP ETF/closed-end funds space. (I don't because I have compliance issues that make ETFs more manageable from a risk perspective than individual stocks, but I might go that route if things cheapen enough that I'm truly a long-term buyer).
While the Fed is important, there is a lot of opportunity to adjust your portfolio and do the best you can to maximize your after-tax total return and position your aggressive income component well for next year.