• Wealth Management

A Winning Model

Morgan Stanley Wealth Management’s US Model Portfolio earns top spot on Barron’s-Zacks 2014 Rankings of Best Stock Picks.

When it comes to active management, one Morgan Stanley Wealth Management model portfolio has earned new bragging rights: The US Equity Model Portfolio—which holds 40 stocks, 13 of which rose 20% or more in 2014—took first place in the Barron’s-Zacks 2014 rankings of top stock selections.

The US Equity Model Portfolio returned 7% in the six months ended December, 2014, and 16.8% for the full year. It ranked first in both periods based on the Barron’s-Zacks survey methodology, and beat the full-year 14% total return of the Standard & Poor’s 500 Index, a benchmark of the broader US stock market.

Barron’s notes that “exposure to soaring consumer-oriented stocks and general avoidance of small-cap stocks” contributed to the stock-picking winners’ success.

“The addition of some consumer-oriented stocks since midsummer made the biggest positive contribution to performance in the second half,” says Dan Skelly, head of the winning Equity Model Portfolio Solutions team. Plus, having the right mix of consumer stocks in sectors such as retail, airlines, hotels and restaurants, as well as health care, helped offset negative exposure to energy stocks.

Qualitative, Quantitative Approach

The US Equity Model Portfolio combines growth and value-style investing. It primarily comprises large-capitalization US equities and select mid-capitalization equities from a variety of industries. Its top stock ideas in the second half of 2014 included the retailer Costco Wholesale, Time Warner, and Apple, all of which were part of a larger call on expected improvement in US consumer growth.

“The US Equity Model Portfolio is a sleeve of our favorite ideas within this asset class,” says Skelly. “We try to outperform the market by selecting securities that offer more attractive risk and return profiles.”

To do so, the team takes both a qualitative and quantitative approach. In addition to fundamental research, “we screen for attractive stocks quantitatively based on growth, valuation and quality,” adds Skelly. “We tend to favor valuation-sensitive strategies over more momentum-based approaches.”

Ideas in Action

The portfolio’s core is based largely on Morgan Stanley & Co. Equity Research’s “best ideas in action,” says Skelly, “with an additional overlay from Morgan Stanley & Co.’s US Strategy team and our team’s customary independent views.”

The US Equity Model Portfolio is one of a suite of tailored model portfolio solutions, ranging from goals-based investment models to targeted baskets of securities. To identify investment opportunities, the Model Portfolio Solutions team combines rigorous “bottom-up” research and proprietary analysis with “top-down” investment themes generated by the firm’s Global Investment Committee.

The team’s suite of integrated model portfolios also enables the firm’s Financial Advisors to build customized solutions based on clients’ unique goals, risk tolerance and performance objectives.

To learn more about the US Equity Model Portfolio and Morgan Stanley Wealth Management’s entire suite of model portfolio solutions, contact a Morgan Stanley Financial Advisor.

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