Sectors with potential capital gains to be taxed

When thinking about the inevitable capital gains tax increase, it is interesting to look at which sectors will be most affected. The marginal non-institutional investors with large capital gains in a stock might be motivated to sell their shares into year end in order to avoid the 5% tax increase. However, the sectors impacted by a changing capital gains tax depend on the distribution of holding times by investors.  If investors hold stocks for a year and a half on average it has a very different implication than if the average investors hold stocks for 2 or more years. 

On a 6 month time horizon, by the end of the year people who bought 6 months ago will be able to see their holdings at the long term capital gains tax rate:

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1 year time horizon with returns over 50%: Everything rebounded this year, but particularly consumer discretionary and financial stocks.

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2 Year Time Horizon with returns over 20%: Technology and consumer discretionary stocks are the ones with capital gains.

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3 Year Horizon: Investors with a three year time horizon are sitting on gains everywhere but in financials and utilities.

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5 Year Time Horizon with returns over 40%:

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Source: Palantir Finance

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I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

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