Pre-tax vs. after-tax allowable deviations from asset allocation weights?

Those of you who work in portfolio management / asset management,

In practical, real-world asset management, do you use pre-tax or after-tax allowable deviations from the strategic asset allocation target weights?


Almost always pre-tax. The vast majority of mass investment products are flow through vehicles, in that each investor pays tax at their own marginal rate. Fund sponsors cannot make decisions based on taxes that vary for each unit holder.

At the personal level, yes it does make sense to adjust AA for taxes but this is rarely done. In part because 1) all reporting is pre-tax so the info is readily available, and 2) I would venture most advisors either aren’t capable of making that adjustment (or they don’t have the time), and explaining it to uneducated clients would be a nightmare.