Core Portfolios

Here’s how the investments are managed:

• The Investment Solutions Investment Committee (ISIC) utilizes. an investment analysis methodology that incorporates various quantitative criteria, including historical return, risk, expenses, manager tenure, performance and style consistency, and asset size and growth, to select securities held in the investment portfolios.
• MSSB uses a systematic algorithm to determine your recommended portfolio of ETFs based on answers to your Investor Profile Questionnaire. The goal is to select the appropriate investment portfolio based on an investor’s investment objectives risk tolerance, and time horizon.
• Core Portfolios is checked daily for opportunities to rebalance. If your portfolio drifts too far, generally by 5% or more, from your target allocation and when material deposits or withdrawals are made, our portfolio management team will automatically rebalance your investments to help keep the account on track.
• Access to a dedicated support team is just a phone call away.  For any questions about the Core Portfolios program, please call the Core Portfolios support team available weekdays from 8:30 a.m. to 8:30 p.m. ET at 1(866)-484-3658.

For additional information, please see the MS Core Portfolios ADV Brochure.

MSSB follows a disciplined investment strategy based on principles of Modern Portfolio Theory (MPT). MPT is a widely utilized framework for building diversified investment portfolios. The underlying philosophy of MPT is to contrast a portfolio with a combination of asset classes (e.g., US equity, international equity, fixed income) based on the expected returns and volatility that these asset classes have displayed over time.

Combining different asset classes may help limit risk and increase returns of the investment portfolio as the classes have varying levels of correlation to one other. Many of the assumptions made in MPT rely on historical data, which may not be representative of the future, potentially leading to unexpected outcomes. All portfolio holdings will be selected by E*TRADE Capital Management's investment strategy team based on multi-stage due diligence by Global Investment Committee.

When markets fluctuate, it’s easy for your portfolio to drift from its original target allocation. That’s why we monitor your Core Portfolios account daily to see if it needs to be rebalanced. Whenever the investments in your portfolio drift too far, generally by 5% or more, from the weighted percentage of the portfolio’s target asset allocation, our portfolio management team will automatically rebalance your investments to maintain the appropriate risk level aligned with the Investment Strategy that you have selected. Read our educational article to learn more about portfolio rebalancing and how it can benefit you.

We first seek to use the cash balance in the account to satisfy the withdrawal. Then, if the client needs additional cash, we strategically sell investments from across the portfolio in an effort to maintain the portfolio’s target asset allocation.

Once you have selected your portfolio, you can further customize your strategy based on your investing preferences.

Core Portfolios (Smart Beta): Want a more active portfolio strategy? We’ll allocate a portion of your assets to a smart beta ETF – a type of ETF that favors equities with certain characteristics which may help enhance your overall returns.  Factors, or specific characteristics of stocks that have performed well historically, are utilized to select stocks. This strategy also combines elements of active and index investing.

These strategies seek to outperform a benchmark index and typically aim to enhance returns or minimize risk relative to a traditional market-capitalization-weighted benchmark. An ETF employing a smart beta strategy may have higher portfolio turnover which may indicate higher transactions costs relative to its benchmark. Utilizing smart beta strategies does not guarantee against underperformance relative to a more traditional market-capitalization-weighted benchmark. 

Core Portfolios (Socially Responsible): Looking to align your investing with your personal values? We’ll adjust your portfolio to include an ETF that focuses on companies known for their environmental, social, and governance practices. Socially responsible ETFs invest to a specific mandate, including incorporating SRI criteria into investment analysis; screening for companies that adhere to environmental, social, or governance standards; or fixed income ETFs focused on community impact securities.

SRI strategies may eliminate or limit exposure to investments in certain industries or companies that do not meet certain environmental, social, or governance criteria. As a result, the ETF may underperform other funds or an appropriate benchmark that do not have an SRI focus.

No, Core Portfolios is designed for investors who want ongoing help and professional guidance to manage their account. Please keep in mind, Core Portfolios is a discretionary program and only MSSB can place trades in a Core Portfolios account. Of course, if investors would like to do some investing and trading on their own, they can open a MSSB self-directed brokerage account at any time.

Core Portfolios is managed with a long-term perspective in mind. Frequent cash withdrawals might make the portfolio difficult to manage and cause it to deviate from its objectives. To avoid this problem, Core Portfolios doesn’t offer features such as check writing, debit cards, and Bill Pay. However, we don’t want to stand between clients and their cash. If you need to make a withdrawal select “Withdrawal” under “Move Money” tab on your account dashboard and follow the instructions.  Customer Service can be reached anytime at 866-484-3658 for any questions. You can also transfer money online to another account and withdraw it from there.

Tax-sensitive investment strategy is available in Core Portfolios account.

Tax-sensitive investment strategy utilizes municipal bond ETFs that may help reduce taxes incurred on interest and dividends associated with those portfolios. All brokerage accounts are automatically enrolled in a tax-sensitive portfolio. Once enrolled in Core Portfolios, you can update this feature at any time. IRAs and other tax-advantaged account types are also eligible for Core Portfolios.

Tax-loss harvesting is a tax-efficient investing strategy that can potentially help minimize the amount of current taxes you have to pay on your investments. Under current US federal tax law, you may be eligible to offset your capital gains with capital losses incurred during that tax year or carried over from a prior tax return through tax-loss harvesting.

All active taxable Core Portfolios accounts are eligible to enroll in tax-loss harvesting. Once enrolled, Core Portfolios will monitor the enrolled account for tax-loss harvesting opportunities.

Tax-loss harvesting may potentially allow you to write off losses against any of your capital gains. Additionally, you may be able to write off losses up to $3,000 of ordinary income. Any losses that are not used against your capital gains and/or income in a given year may be carried over to the next year.

However, tax-loss harvesting may not always be beneficial. It may create an undesirable tax liability if your future tax bracket is expected to be higher than your current one. If you expect to be in a higher tax bracket in the future, it may not make sense to enroll in tax-loss harvesting. Additionally, tax-loss harvesting may not be appropriate for accounts with a shorter time horizon, as you may wish to avoid realizing short-term capital gains.

There is no guarantee that any harvesting request will achieve any particular tax result. MSWM does not provide you with any tax advice in connection with tax-loss harvesting. Tax-loss harvesting may adversely affect the investment performance of your account(s).

Please note that Morgan Stanley does not provide legal, tax or accounting advice. For additional information, please consult IRS guidelines and your tax advisor.

Visit the “Allocation” tab within Portfolios. Select an eligible account. Under “Tax-Loss Harvesting” near the top of the page, select “Enroll.”

To unenroll, select “Unenroll” in the same location.

Once you enroll in tax-loss harvesting, we will monitor your Core Portfolios account to find potential for tax-loss harvesting opportunities. When we find that you could potentially lower your tax bill by harvesting losses, we'll perform tax-loss harvesting for you automatically. There are no trading costs to harvest your losses, and we'll look to purchase a replacement security in the same investment asset class to ensure you keep your target exposure.²

We will send you an alert at enrollment, and when each tax-loss harvesting trade is executed.

Visit the Allocation tab within Portfolios. Select the account enrolled in tax-loss harvesting. Your realized losses since initial enrollment will be reported under “tax-loss investing.”

Refer to these articles to learn more about tax-loss harvesting and how to get started:

• Here’s how tax-loss harvesting can work year-round for you
• How to automate tax-loss harvesting