Morgan Stanley's Mediocre Portfolio

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by: Efsinvestment

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 (NYSE: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 (NYSEARCA:SPY)

8,999.51

5.81

8.28%

3.42%

Ishares Russell 2000 (NYSEARCA:IWM)

2,134.24

1.38

-36.88%

1.93%

Apple (NASDAQ:AAPL)

1,903.70

1.23

9.42%

9.61%

Vanguard Emerging M. ETF (NYSEARCA:VWO)

1,584.83

1.02

4.47%

-2.97%

Exxon Mobil (NYSE:XOM)

1,291.21

0.83

4.70%

13.25%

Microsoft (NASDAQ:MSFT)

1,259.06

0.81

19.77%

-7.42%

Ishares Russell 1000 Growth (NYSEARCA:IWF)

1,068.19

0.69

1.48%

3.25%

SPDR Gold Shares (NYSEARCA:GLD)

1,055.94

0.68

-1.14%

0.10%

Ishares MSCI Emerging M. (NYSEARCA:EEM)

1,028.99

0.66

-13.32%

-2.81%

Powershares (QQQQ)

1,008.90

0.65

-27.46%

3.36%

Vale (NYSE:VALE)

1,003.55

0.65

5.29%

-5.67%

Simon Property (NYSE:SPG)

941.63

0.61

4.08%

6.98%

JPMorgan Chase & Co (NYSE:JPM)

940.17

0.61

15.89%

6.92%

Procter & Gamble (NYSE:PG)

925.68

0.6

-9.26%

-3.93%

Google (NASDAQ:GOOG)

909.75

0.59

0.60%

-4.04%

General Electric (NYSE:GE)

889.55

0.57

3.59%

9.69%

Philip Morris (NYSE:PM)

864.36

0.56

5.57%

8.63%

Johnson & Johnson (NYSE:JNJ)

856.29

0.55

2.43%

-3.54%

AT&T (NYSE:T)

816.98

0.53

9.45%

-2.66%

Ishares Nasdaq Biotech. (NASDAQ:IBB)

805.11

0.52

-0.83%

1.92%

Equity Residential (NYSE:EQR)

799.83

0.52

2.06%

4.29%

Mead Johnson Nutrition (NYSE:MJN)

754.88

0.49

11.20%

-7.87%

IBM (NYSE:IBM)

752.87

0.49

18.83%

10.40%

Chevron (NYSE:CVX)

751.36

0.49

-3.24%

11.30%

Amazon.com (NASDAQ:AMZN)

746.61

0.48

7.10%

-7.37%

Ishares MSCI eafe Index (NYSEARCA:EFA)

732.15

0.47

20.37%

0.10%

Cisco Systems (NASDAQ:CSCO)

724.44

0.47

34.87%

-11.76%

America Movil (NYSE:AMX)

718.82

0.46

-14.32%

-2.98%

Ishares Russell 1000 Value (NYSEARCA:IWD)

709.49

0.46

3.45%

3.76%

Intel (NASDAQ:INTC)

704.47

0.46

14.70%

-0.05%

TOTAL / AVERAGE

37682.59

24.34

1.94%

Click to enlarge

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' (NYSE: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.