Wealth Management introduces a fresh instrument aimed at assisting clients in managing the risk associated with individual stock investments.
Morgan Stanley Wealth Management's Global Investment Office (GIO) has introduced a new proprietary tool called the Equity Vulnerability Score. This innovative tool is designed to help clients and Financial Advisors measure and rank the susceptibility of US stocks to potential future drops in value.
The Equity Vulnerability Score is particularly useful for investors with concentrated equity positions, defined as holding five or fewer stocks that constitute more than 30% of portfolio risk. This tool aims to help these investors manage the risks of underperformance, higher volatility, and substantial drawdowns that may arise when a single stock declines and adversely impacts the overall portfolio.
The Equity Vulnerability Score evaluates stocks using three key categories: Financial Stability, Fundamental Momentum, and Volatility and Tail Risk.
- Financial Stability assesses the company’s overall financial health and resilience.
- Fundamental Momentum examines the underlying business performance trends.
- Volatility and Tail Risk measures price fluctuations and extreme downward risks.
Historically, the Global Investment Office found that stocks in the Russell 1000 Index showed more than double the volatility of the index itself (37% versus 15%) and experienced average maximum drawdowns twice as large as the index (approximately 50% versus 25%) since 2014. This data underscores the importance of assessing individual stock risk beyond broader market indices.
By providing a score that flags stocks more vulnerable to significant value declines, the tool helps financial advisors and investors identify and mitigate risks specific to concentrated single-stock exposures. It also complements Morgan Stanley’s existing Tactical Equity Framework by adding a risk management layer focused on potential drawdowns.
In summary, the Equity Vulnerability Score is an innovative risk assessment tool that helps investors and advisors quantify and rank the likelihood of future stock declines, enabling more informed portfolio risk management, especially for those heavily exposed to individual US stocks.
For more information, please find the report: Global Investment Committee Special Report: Confronting the Concentrated Equity Challenge and Measuring Drawdown Vulnerability. Morgan Stanley's NYSE ticker symbol is MS. The company serves clients worldwide, including corporations, governments, institutions, and individuals.
[1] Global Investment Committee Special Report: Confronting the Concentrated Equity Challenge and Measuring Drawdown Vulnerability, Morgan Stanley Wealth Management, December 2024. [2] Data and analysis provided by Morgan Stanley Wealth Management are for illustrative purposes only and are not intended to serve as the primary basis for investment decisions. Past performance is not indicative of future results.
- Morgan Stanley's Global Investment Office introduced a tool called the Equity Vulnerability Score, aimed at helping investors and financial advisors manage risks associated with concentrated single-stock exposures.
- The Equity Vulnerability Score evaluates stocks using three categories: Financial Stability, Fundamental Momentum, and Volatility and Tail Risk.
- Historically, stocks in the Russell 1000 Index have shown more volatility and larger average maximum drawdowns compared to the index itself, highlighting the need to assess individual stock risk beyond broader market indices.
- For investors with concentrated equity positions, the Equity Vulnerability Score can help measure and rank the susceptibility of US stocks to potential future drops in value, thus helping manage risks of underperformance, higher volatility, and substantial drawdowns.
- The Equity Vulnerability Score complements Morgan Stanley's existing Tactical Equity Framework, adding a risk management layer focused on potential drawdowns.
- The report Global Investment Committee Special Report: Confronting the Concentrated Equity Challenge and Measuring Drawdown Vulnerability offers more insights on the tool, and its NYSE ticker symbol is MS, serving clients worldwide in finance, banking, wealth management, and global investments.
- It is important to note that data and analysis provided by Morgan Stanley Wealth Management are for illustrative purposes only and should not serve as the primary basis for investment decisions. Past performance is not indicative of future results.
