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Cache Long/Short: A Client Case Study, Two Months In

I was the first investor in Cache Long/Short. When we launch something new at Cache, it rolls into production on my account. Long/Short was no exception. Here's the experience so far, with my real numbers.

Srikanth Narayan

Founder and CEO

Why did we build Cache Long/Short? Because we don't think concentrated stock is a one-product problem. Cache Long/Short can provide investors with more flexibility, while reducing concentration risk and harvesting losses to offset gains along the way.

The Setup

In late March, I funded my account with roughly $1M of assets: a portion of my concentrated UBER position, a highly appreciated GLD position, and several ETFs and cash as collateral.

I worked at Uber from 2014 to 2020. My earliest Uber grants from stock options were highly appreciated, and I used the Cache Exchange Fund to diversify some of these holdings. Ongoing grants, issued as RSUs, had a higher cost basis, making them well-suited for Cache Long/Short.

That distinction matters. We often hear investors talk about concentrated stock as though it were a single position. In practice, different lots can have very different tax characteristics. The right strategy for deeply appreciated options may not be the right strategy for ones with higher basis.

Diagram of my Uber equity grants — early stock options (low cost basis, highly appreciated) diversified through a Cache Exchange Fund, and later RSUs (higher cost basis) suited to Cache Long/Short.

My Cache Long/Short Portfolio

About two months in, the portfolio held roughly $1.2M across 837 positions, running a 130/30 long/short strategy benchmarked to the S&P 500.

Cache Long/Short portfolio snapshot — roughly $1.17M across 837 positions in a 130/30 strategy benchmarked to the S&P 500. — More information on long and short exposure in the long short leverage disclosure at the end of the article.

Tax-efficient Diversification

The Uber position is largely gone: down from 6,647 shares ($465K) to 318 shares ($22.6K), a 95% reduction across 20 separate trades. Those trades realized about $200K in gains. The purpose of the strategy was to generate losses elsewhere in the portfolio that could offset those gains.

Position reductions — UBER down 95% (6,647 to 318 shares) and GLD down 47%.

Across 854 transactions, the strategy harvested $78.7K in losses. Nearly all of the gains realized from selling UBER and GLD were long-term, while nearly all harvested losses were short-term. That's generally the most valuable tax outcome.

Harvested losses of $78.7K across 854 transactions, charted over the two-month period.

The Benefits

Taxable long-term gains fall from roughly $195K to $125K in just two months, and as of this writing the strategy still had several months left in the year to continue harvesting.

Realized long-term gains versus harvested losses reducing the taxable gain to roughly $125K in two months.

Given my legacy holdings, performance is compared against an adjusted benchmark that factors in these weights. Since we started, the strategy is up 12.6%, slightly ahead of the adjusted benchmark on an after-tax basis. The tax-loss harvesting didn't require stepping out of the market.

After-tax cumulative return — portfolio up 12.6%, slightly ahead of the adjusted benchmark. — Expenses include a 0.50% annual management fee and average borrowing costs of 0.29% per year (borrowing costs are variable), for total annual fees of approximately 0.79%. Investors are also subject to custodial and other fees, as described in Cache Advisors LLC's Form ADV.

Over the first two months, the strategy generated roughly $40K of losses per month. Future loss generation will depend on market conditions, and a substantial portion of the remaining taxable gain from the UBER unwind ideally may be offset before year-end.

One common misconception is that tax-loss harvesting eliminates taxes altogether.

It does not.

The gain is simply deferred rather than eliminated. My portfolio began with roughly $411K of embedded gains. After realizing gains, harvesting losses, and remaining invested, the portfolio still contains roughly $429K of embedded gains. The value comes from when and how those gains are recognized.

Embedded gains — about $411K at the start versus about $429K two months later; gains are deferred, not eliminated.

Over two months, roughly $500K of concentrated UBER and GLD exposure moved into a broadly diversified portfolio, while the strategy harvested meaningful losses along the way.

Running the strategy in my own account reinforced something we've long believed: concentrated stock is rarely a single problem with a single solution. In my planning, my earliest Uber grants were better candidates for an Exchange Fund. Later RSU grants proved well-suited for Long/Short.

Different lots call for different tools.

If you're weighing how to manage a concentrated position, you can model your own situation with our Long/Short calculator, learn more on the Long/Short product page, or talk to our team.

Important Disclosures

The 12.6% return reflects the performance of a single account over a specific time period and should not be considered representative of any other investor’s experience or expected returns. Results reflect the specific holdings, funding sources, and timing of one portfolio and will vary for other investors. Past performance is not indicative of future results. Results are net of a 0.50% annual management fee and average borrowing costs of approximately 0.29% per year (roughly 0.79% in total annual fees); expenses for portfolios with higher leverage may be greater.

The Cache Long Short Program is managed by Cache Advisors LLC, an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Registration with the SEC does not imply a certain level of skill or training. Cache Advisors LLC is a wholly owned subsidiary of Cache Financials, Inc.

Certain assets within the Cache Long Short Program may be sub-advised by Brooklyn Investment Group (“Brooklyn” or “BKLN”), an SEC-registered investment adviser that is not affiliated with Cache or its affiliates. Assets associated with the Cache Long Short Program are custodied at Charles Schwab & Co., Inc., a member of SIPC. Neither Brooklyn Investment Group nor Charles Schwab & Co., Inc. is affiliated with Cache or its affiliates.

Long/short investment strategies involve additional risks beyond traditional long-only strategies, including risks associated with leverage, borrowing, short selling, increased portfolio turnover, and heightened volatility. These strategies may result in losses that exceed those of more traditional investment approaches, including losses in excess of your initial investment.

Any references to objectives, targets, transition plans, or tracking error estimates are based on historical assumptions and estimates and are not guarantees of future results. Actual results may differ materially. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Cache Advisors does not offer financial planning services or asset allocation recommendations; any recommendations are limited to the leverage ratio discussed in the Form ADV.

Additional information regarding the Cache Long Short Program, including its investment strategies, risks, fees, and expenses, is available in Cache Advisors LLC’s Form ADV.