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US Equities

US Equities. Scenario and strategy. Romina Graiver International Equity Investments Vienna - March 2006. Recent developments in the USA (1). A few recent indicators could raise concerns about the economy…. The first estimate of 4Q GDP growth (1.1%) is below our expectations

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US Equities

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  1. US Equities Scenario and strategy Romina Graiver International Equity InvestmentsVienna - March 2006

  2. Recent developments in the USA (1) A few recent indicators could raise concerns about the economy… • The first estimate of 4Q GDP growth (1.1%) is below our expectations • It is difficult to assess the respective impact of the various factors • Hurricanes, oil prices, rising interest rates, etc • Companies’ quarterly earnings involved a few disappointments… • Negative surprises apparently slightly more numerous than in prior quarters • Competitive pressures and higher costs obviously take a toll • However negative surprises remain below 20% despite stock option bias • …but most indicators point to optimism for the foreseeable future • Confidence gives no sign of erosion • ISM, employment, consumer confidence all remain strong • Production, inventories and capacity utilization are rather good

  3. Recent developments in the USA (2) Most indicators point to optimism for the foreseeable future

  4. The other factors Globally OK • Energy prices • Impact of past rises largely discounted • Uncertainties about the future mainly due to speculation • seasonal factors should play favorably • investment likely to restore capacity • Foreign economies • Signs of a broader-based recovery • Japanese consumption improving gradually • Euro zone also showing improvements • Political risk • Continuing tensions worldwide • recent results of Palestinian elections • consequences of cartoons in the European press • Iran’s resumption of nuclear program

  5. Situation in the main sectors A global interpretation of our model ’s bottom-up messages • Consumer Discretionary • Contrasted in softlines retail, technical rebound in auto sales • Consumer Staples • Still few opportunities • Energy • Earnings at record highs, but future trends less appealing • Finance • Attractive results in IB, too much risk in lending-related businesses • Healthcare • Focus back on new products in pharmaceuticals, but still prefering services • Industrials • Rail transportation benefiting from fuel-efficiency and strong economy • Technology • Aggressive competition in semi and hardware • Materials • Continuing our selective stance due to cyclical reasons

  6. US Core Growth - Reminder: Investment philosophy We believe in research, pragmatism and discipline In highly efficient markets, structuring intuition to eliminate emotion, and thus focus on what really makes the difference, is key to achieving superior performance results A consistent approach, involving a reasonable use of computer processing in those areas where it is more effective than human judgment, will help achieve this objective

  7. US Core Growth - Reminder: Process overview Actual Portfolios A structured, disciplined process based on extensive research Model development / upgrade (Long-term research cycle) Fund management (Short decision cycle) Investment Universe Quantitative processing (Model) Buy and Sell lists+ Portfolio construction guidelines Judgmental overlay (Analyst + Fund Manager) 3-5 year cycles Model Portfolio Implementation / Execution (Traders)

  8. US Core Growth - Reminder: Model ’s contribution Investment Universe (500+ companies selected for their investibility) Dynamic Growth family Static Growth family Valuation family Diffusion of earnings estimates revisions Expected LT growth rate of Book Value Growth-adjusted P/E with notoriety coefficient Industry-adjusted Price / Earnings ratio Earnings surprise analysis Weighted combination Current Portfolio All stocks in the universe ranked in order of fundamental attractiveness Revised ranking (marginal adjustments for earnings surprise) Implementation rules • Sell if rank falls in bottom 30% • Buy from top 5% • Max. sect. overweight : +10% • Hold 50 stocks at all times • Weight all stocks equally • Recompose monthly BUY list SELL list The computer identifies opportunities from a huge mass of fast-changing data

  9. US Core Growth - Investment style Adjusting to market environments, but always with a growth bias Compared characteristics of a typical share

  10. US Core Growth - Portfolio characteristics Industry breakdown (Portfolio vs S&P 500) Truly active strategy driven by bottom-up stock selection

  11. US Core Growth Strategy April to June 2005: list of portfolio changes Sells Buys • Harley Davidson • (inventories, disappointing guidance for 2005) • Affiliated Computer Services • (deteriorating sales, profit warning for FY 06) • Tyco • (profit taking as sales and cash flow slow down) • Cognos • (impact of slowing number of large deals on EPS) • Morgan Stanley • (tough environment + destabilized management) • US Steel • (trends in US demand, high costs in Europe) • Lehman • (strength in M&A, mkt share gains, diversification ) • Hilton • (pick-up in margins on strong business bookings) • Motorola • (refocused business and new handset product line) • Cisco Systems • (strong existing business + new growth areas) • Federated Department Stores • (May acquisition combined w/ strong consumption) • Invitrogen • (integrating acquisitions into strong product platform)

  12. US Core Growth Strategy July to September 2005: list of portfolio changes Sells Buys • Avaya • (profit taking on rebound + high risk of bad news) • Fedex • (impact of fuel prices on margins) • Harman International • (exposure to EUR/USD exchange rate) • Mercury Interactive • (poor guidance + poor visibility on restruct. costs) • Citigroup • (mgt issues, weak in trading and credit card) • Dell • (slower top line growth + limits to bus. model) • Allegheny • (improved cost structure, specialization, demand) • Oracle • (installed base in database segment, sales force) • Paychex • (3-pillar growth strategy, enhanced staff management) • Target • (strong image, client focus, strategy to drive traffic) • W.W.Grainger • (growth strategy despite conservative bal. sheet mgt) • Hewlett Packard • (turnaround strategy proving fruitful under new mgt)

  13. US Core Growth Strategy October 2005 to January 2006: list of portfolio changes Sells Buys • Ivax • (take-over by non-US company) • Apollo Group • (slowing enrolment trends) • Invitrogen • (disappointing sales in bio-production area) • Wellpoint • (profit taking as slower membership growth) • Bed Bath and Beyond • (competitive pressures and market share issues) • Exxon Mobil • (diversified exposure to oil businesses, refining capa.) • Medtronic • (innovation, new products, competitive landscape) • Merrill Lynch • (exposure to Private Banking, product line expansion) • Abercrombie & Fitch • (brand momentum, pricing power, geog. expansion) • Canadian National Railway • (investments and cost control in favorable economy)

  14. US Core Growth - Portfolio list Well-known blue chips and more original ideas identified by the model • Consumer Discretionary • Abercrombie & Fitch • Coach • Federated Dept Stores • Hilton Hotels • Lowe’ s • Nordstrom • Staples • Target • Yum! Brands • Healthcare • Aetna • AmgenCaremark • Express Scripts • GenzymeGilead Sciences • Medtronic • United Health Group • Information Technology • AccentureApple Computers • Autodesk • Cisco Systems • Hewlett Packard • IntelJabil Circuit • Motorola • Nvidia • Oracle • Paychex • Western Digital • Industrials • Canadian National Railway • Cendant • Grainger (W.W.) • JetBlue Airways • L-3 Communication • Norfolk Southern • United Technologies • Financials • AllstateBank of America • Capital One FinancialEverest Re • Goldman Sachs • Lehman • Merrill Lynch • Moody’s • Materials • Allegheny Technologies • Dow Chemical • Telecom Services • Sprint Nextel • Energy • BJ Services • Exxon Mobil • XTO Energy • Utilities • - • Consumer Staples • -

  15. US Core Growth - Institutional track-record (gross of fees) Consistent outperformance was achieved in both bull and bear markets (*) Sources BNP PAM, Standard & Poor’s (*) Please read important information at the end of the present document. Past performance is no guarantee of future performance. The value of any investment may go up as well as down

  16. US Core Growth - Performance history (gross of fees) Consistent outperformance was achieved in both bull and bear markets (*) Annual returns - US Core Growth vs S&P 500 Sources BNP PAM, Standard & Poor’s (*) Please read important information at the end of the present document. Past performance is no guarantee of future performance. The value of any investment may go up as well as down

  17. US Core Growth - Open-ended fund track-record (net of fees) Parvest USA: the same strategy packaged as a Luxembourg Sicav (*) Sources BNP PAM, Standard & Poor’s (*) Please read important information at the end of the present document. Past performance is no guarantee of future performance. The value of any investment may go up as well as down

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