Zacks Ranks Broker’s U.S. Model Portfolios

Zacks Ranks Broker’s U.S. Model Portfolios for Second Half of 2007

22 Feb 2008

CHICAGO--(BUSINESS WIRE)--In a year where many factors came together to negatively impact stocks, not the least of which was volatility, and the market struggled to post a profit, investors became increasingly nervous over the direction of the stock market during the second half of 2007. This made stock picking more difficult, to say the least. Having said that, Zacks Investment Research once again releases the rankings of the model portfolios of some of the street’s retail brokerages.

The leading brokerage firms employ analysts who produce recommendations for hundreds of stocks, which can not all be bought for a client portfolio. These brokerage firms then create model portfolios from all of the stocks each firm is following. These can be used as a starting point in the stock selection process to meet a specific client's risk & return needs. The process to create these lists range from a bottom up quantitative methodology, to a top down fundamental process. The model portfolios in the Zacks survey include U.S. traded equities including ADRs.

Overall, the survey shows that the firms that didn’t rotate their portfolio holdings to large cap, defensive, quality stocks, from small cap stocks, in the second half of last year, didn’t fare as well as those who did.

Those with an over exposure to financial stocks saw the same result. For the second half of 2007, Bear Stearns took the top spot with a 12.08% total return. Goldman Sachs took second and Morgan Stanley took third place. Bear Stearns also placed first in the one year ranking, with a 21.98% total return. Goldman Sachs placed second in that time period as well, with a total return of 16.76%. Morgan Stanley took third here as well, with a 12.01% return.

The top 13 ranked brokerages for the second half of 2007 (6/30/07 to 12/31/07) are as follows…

Rank Brokerage Firm Total Return
1. Bear Stearns 12.08%
2. Goldman Sachs 5.04%
3. Morgan Stanley 1.71%

4. A G Edwards -0.34%
5. Smith Barney -0.91%
6. Edward Jones -1.18%
7. Raymond James -3.15%
8. Bank Of America -4.16%
9. Charles Schwab -5.79%
10. McAdams Wright Ragen -6.18%
11. Credit Suisse -7.25%
12. Matrix USA -10.85%
13. Morgan Keegan -17.32%

S&P Total Return.....-1.37%
S&P 500 Total Return Equal Weighted.....-6.75%
It is important to note that despite the rough second half of 2007, the average broker list outperformed the S&P 500 for the longer time periods under review (1 yr, 3yr, 5yr and 7yr), some pretty significantly.

Correction: Due to a computation error, Matrix finish for 2006 was incorrectly listed in our release “Brokerage Firm’s Stock Recommendations Still Prove Profitable” , March 12, 2007. With a 14.54% total return, the firm placed second in the second half to first-place winner Smith Barney.

Zacks complete one-, three-, five- and seven-year rankings are available to the media upon request. Zacks calculates the performance of the brokerage "model portfolios" it tracks, on an equal-weighted basis. Total return performance figures include stock price changes, dividends and hypothetical trading commissions of 1% for each addition and deletion to the model portfolios.

The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor's. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index.

Zacks Investment Research, Inc., developed the concept of the EPS Surprise and created the first quantitative model to predict stock prices based on patterns, estimate revisions and surprises, called the Zacks Rank. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities.

truffolo@zacks.com. Zacks Investment Research, 111 N. Canal Street, Suite 1101, Chicago, IL 60606.