You have it backwards. If you directly replicate an ETF by buying stocks directly, you can capture the loss as soon as one stock goes down (and buying a share of something equivalent to stay approximately indexed). In the ETF, you only get a tax loss if the whole ETF has gone down. If no stock goes down, you don't have to sell, same with an ETF. For tax efficiency, direct indexing is superior than an ETF. This means you have to keep injecting money into the fund to keep the portfolio properly allocated (ie, you must avoid selling stocks that have gone up).