EUROPEAN PORTFOLIO

This investment strategy has been systematically researched since October 2001 on both a cumulative and a quarterly basis and has produced a return of +48.23 per cent compared with a return of +14.85 per cent in the MSCI World Index. The idea was presented for the first time in the PWM April 2003 issue, at a time when the market became more aggressive. The power combination portfolio was invested mostly in defensive sectors, such as real estate, tobacco, medical products, transportation and food & beverages. The portfolio was built by selecting the best two stocks of the best five sectors and shows a return of +23.25 per cent compared with a return of +29.81 per cent in the Stoxx600 Index. It is interesting to notice that just one out of the 10 dropped off the track (Altadis) by returning just +4.85 per cent. Presently, which are the best five sectors to be used for this strategy? Real estate was the top sector in April 2003 and still remains attractive. The medical products sector was placed third but is top when researching the longer-term risk to reward relationship, with transportation occupying the fourth position. The only two newcomers are finance and textiles, which replace tobacco and food & beverages. The stability of these top sectors over more than a year gives the model a medium to long-term appeal. The best two stocks of these top sectors are now chosen using the same allocation criteria used for the sector indices. It can be argued that the power combination portfolio is based entirely on history and that an eventual out-performance against the index will only be casual. Trend is a fact and represents a point where there is a high degree of consensus among the market participants which are usually well informed as a mass. The trend could stop tomorrow due to new fundamental input, but there is a high degree of probability for the portfolio to do better than the index for at least another three months. This is about the time frame when the strategy must be reviewed. The portfolio can very often be carried forward over many months, but the review is necessary in order to perceive a change in the sector rotation and to avoid creeping under performance. For further information on Brainpower’s professional portfolio analysis software, please visit www.brainpowerweb.com

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