The investment banks that barely survived the financial crises are back on their feet. In 2010, the total fees charged by the industry increased by almost 6% to $49.1 billion. Morgan Stanley (MS) was the second most profitable company in stock equities and bond underwriting. Last year, the company earned $3.67 billion in advisory fees. This year, according to Zacks research, earnings are expected to grow by 14.3% and long-term consensus earnings growth is 10.18%. With $464.7 billion in current assets, Morgan Stanley is one of the largest institutional investors in the stock market. The investment giant offers one of the largest portfolio of mutual funds:
"With more than 2,500 investment options from over 150 mutual fund companies, Morgan Stanley Smith Barney offers a wide array of mutual funds to meet a broad range of investment goals."
Morgan Stanley itself offers around 50 of its own funds managed by "professional" money managers. Twenty-eight of these funds invest in equity markets. Morgan Stanley's largest holdings are as below:
Stock / ETF | Value ($ Million) | % of Portfolio | % Change | YTD Return | |
SPDR S&P 500 (SPY) | 8,999.51 | 5.81 | 8.28% | 3.42% | |
Ishares Russell 2000 (IWM) | 2,134.24 | 1.38 | -36.88% | 1.93% | |
Apple (AAPL) | 1,903.70 | 1.23 | 9.42% | 9.61% | |
Vanguard Emerging M. ETF (VWO) | 1,584.83 | 1.02 | 4.47% | -2.97% | |
Exxon Mobil (XOM) | 1,291.21 | 0.83 | 4.70% | 13.25% | |
Microsoft (MSFT) | 1,259.06 | 0.81 | 19.77% | -7.42% | |
Ishares Russell 1000 Growth (IWF) | 1,068.19 | 0.69 | 1.48% | 3.25% | |
SPDR Gold Shares (GLD) | 1,055.94 | 0.68 | -1.14% | 0.10% | |
Ishares MSCI Emerging M. (EEM) | 1,028.99 | 0.66 | -13.32% | -2.81% | |
Powershares (QQQQ) | 1,008.90 | 0.65 | -27.46% | 3.36% | |
Vale (VALE) | 1,003.55 | 0.65 | 5.29% | -5.67% | |
Simon Property (SPG) | 941.63 | 0.61 | 4.08% | 6.98% | |
JPMorgan Chase & Co (JPM) | 940.17 | 0.61 | 15.89% | 6.92% | |
Procter & Gamble (PG) | 925.68 | 0.6 | -9.26% | -3.93% | |
Google (GOOG) | 909.75 | 0.59 | 0.60% | -4.04% | |
General Electric (GE) | 889.55 | 0.57 | 3.59% | 9.69% | |
Philip Morris (PM) | 864.36 | 0.56 | 5.57% | 8.63% | |
Johnson & Johnson (JNJ) | 856.29 | 0.55 | 2.43% | -3.54% | |
AT&T (T) | 816.98 | 0.53 | 9.45% | -2.66% | |
Ishares Nasdaq Biotech. (IBB) | 805.11 | 0.52 | -0.83% | 1.92% | |
Equity Residential (EQR) | 799.83 | 0.52 | 2.06% | 4.29% | |
Mead Johnson Nutrition (MJN) | 754.88 | 0.49 | 11.20% | -7.87% | |
IBM (IBM) | 752.87 | 0.49 | 18.83% | 10.40% | |
Chevron (CVX) | 751.36 | 0.49 | -3.24% | 11.30% | |
Amazon.com (AMZN) | 746.61 | 0.48 | 7.10% | -7.37% | |
Ishares MSCI eafe Index (EFA) | 732.15 | 0.47 | 20.37% | 0.10% | |
Cisco Systems (CSCO) | 724.44 | 0.47 | 34.87% | -11.76% | |
America Movil (AMX) | 718.82 | 0.46 | -14.32% | -2.98% | |
Ishares Russell 1000 Value (IWD) | 709.49 | 0.46 | 3.45% | 3.76% | |
Intel (INTC) | 704.47 | 0.46 | 14.70% | -0.05% | |
TOTAL / AVERAGE | 37682.59 | 24.34 | 1.94% |
The year-to-date weighted-average performance of the top 30 holdings is 1.94%, which is well below the S&P 500 return of 3.42%. JPMorgan's (JPM) equity holdings performance is not much different. Goldman Sachs' (GS) mutual funds underperformed the S&P 500 as well. Ten of the top 30 holdings are index-tracking funds and ETFs. YTD average-weighted return of these ETFs was 1.62%.
A quick snapshot of the top holdings shows that Morgan Stanley reduced eight of its current holdings. The average year-to-date return of these eight holdings was 0.12%. However, Morgan Stanley reduced Chevron holdings by 3.24%. That was a not wise decision since Chevron gained 11.30% since January.
In the last quarter of 2010, Morgan Stanley increased Microsoft, Cisco and Mead Johnson shares by 19.77%, 11.76% and 11%. That was a bad move. Microsoft lost 7.42%; Cisco lost 11.76%; Mead Johnson lost 7.87%. Total cost of holding these stocks was $93.42 million, $85.19 million and $59.41 million, respectively.
Morgan Stanley's best bet after SPY was Apple, followed by Exxon Mobile. YTD return of Apple was 9.61%, and YTD return of Exxon was 13.25%. Apple's total return is $182.5 million, and Exxon's is $171 million.
The mediocre performance of Morgan Stanley's portfolio shows that the company takes hard-earned money and invests in under-performing indexes. They also charge management fees and hidden costs such as front-end/back-end loads, plus commissions you never heard of. For individual investors, that is a strong incentive to invest in low-cost, index-tracking ETFs instead of high-cost mutual funds. Morgan Stanley's mutual funds charge up to 3% in management expenses. In my view, they better pay back for the privilege of investing your money in low-performance stocks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
