These companies with underfunded pensions could drag down your portfolio, Morgan Stanley warns

An American Airlines seen at Ronald Reagan Washington National Airport during the coronavirus crisis.
Michael Brochstein | Barcroft Media | Getty Images

If a company is not meeting its pension obligations, it's probably not going to live up to shareholder expectations either.

Morgan Stanley equity strategists created a list of 50 companies with the largest pension-fund shortfalls. "Our analysis shows that companies with pensions underfunded by >5% of market cap significantly underperform the broader equity universe and sector peers," they concluded.

The strategists estimate pension benefit obligations will rise 6% year-over-year when companies have to square up at year end.

The coronavirus shutdowns had sent stock values into a nosedive, wreaking havoc on pension plans, but a swift market recovery has eased some of the pain. Pension funding has also suffered from a decline in interest rates during the pandemic.