Introduction Our selected objective type was focus on growth with income which is capital appreciation.

The concept primary emphasizes on modest capital growth, secondary focuses on generation of current income. Therefore, we invested in high quality equities and fixed income instruments which have low to moderate exposure to interest rate risk, moderate to high exposure to market risk, exposure to foreign risk and / or currency risk likely. These equities and fixed income instruments normally have a high PE ratio. We generated the semi-active management which is the mixture of active and passive management. Passive management simply buy and hold and minimize the tracking error, while active management would attempt to outperform a benchmark portfolio. The investment strategy we applied was top-down strategy. It was focus on asset, country allocation; industry, sector weightings; and analysis of individual companies and stocks. We compared the EPS growth and PE ratio of 20 stocks in different countries and different sectors in the portfolio. The total amount of investment was USD 100 million, of which 70% cash was invested in stocks of 11 sectors. We diversified and invested in each sector of the S&P Global 1200 index. Then the rest of amount would be donated into the 5-10 years UK bond.

Adjustment Based on the technical performance, two stocks China mobile and Capital Trust .A are removed due to the unfavorable returns. However, the returns of Exxon Mobil Corporation and BHP Billiton Limited outperform the portfolio and benchmark. Unfortunately, the high risks of these two companies result in lower sharpe ratios. For this fact, these two stocks also have been removed. Specifically, those two charts compare the performance between individual stocks and market indices in the past three months. Obviously, the Capital Trust

A always performed much worse than the market from February to the end of April. Although the performance of China Mobile was slightly better than the Hang Seng Index during the previous half of the observed period, the market substantially outperformed China Mobile in the latter period. In order to impair their negative influences on the portfolio performance with comparably higher weight of 2.3% and 5.4% respectively, we decided to get rid of them from the portfolio.

Exxon (U:XOM) Mobil Corporation bases on integrated oil and gas sector. Similarly, BHP Billiton Limited (A:BHPX) dedicated at general mining. As a matter of fact, the prices of oil and mine experience dramatic fluctuations. Correspondingly, the stock prices of these two companies have serve volatilities. Although, the returns of U:XOM (0.8%) and A:BHPX (1.59%) are above portfolio (0.72%) and near benchmark (0.9%), the variances of U:XOM and A: BHPX ( 0.35% and 0.9% respectively) are higher than the portfolio (0.02%) and benchmark (0.06%) substantially. Specifically, the sharp ratios of U:XOM (0.14) and A:BHPX (0.20) are significantly lower than portfolio (0.46) and benchmark (0.37). Apparently, the returns on these two companies cant compensate the risk we taken.

By contrast, four stocks K:HSBC, M:NOKP,K:CLIG and @AMZN namely were selected into our portfolio based on the historical technical performance and fundamental performance. Nowadays, the recessional economical environment lead investors draw a gloomy picture. In addition, the healthy financial sectors functionality restored and clearing up the credit markets are two key factors lead to the economic recovery. For this purpose, governments would support financial industry certainly. HSBC Holding PLC has relatively healthy financial situation. Hence, we forecast the HSBC may outperform than financial industry and obtain significant profit. As NOKIAs annual report, it has almost account 60% for the market, and won the leader position of the mobile business. The technical performance of NOKIA was always close and even above the benchmark. In addition, the fundamental performance of NOKIA is above the peers performance. For a stable expected return and lower risk, NOKIA has been selected in our portfolio.

Based on the least three months technical performance, Amazon and CLP Holding Limited have favorable return relatively. Moreover, in the current global economic crisis, we also chose industries such as specialty retailers and utilities which are not susceptible to negative economic influences with inelastic demand. In specialty retailers industry, we selected Amazon.com which provides online retail sales. Initially, the performance of Amazon.com was always better than that of the market. In the following, we investigated its financial performance compared with other peer groups. Focusing on overall consideration of profitability, asset utilization, leverage, and liquidity of Amazon.com, the outstanding return on asset with 9.6 was higher than the peer mean with only 4.6. In utilities industry, we chose CLP Holdings Limited which generates and supplies electricity in Hong Kong applying to the same rule.

For clearly, we take the fundamental analysis on Amazon as an example.

Firstly, since 2006, the profitability ratios of Amazon are significantly favorable than the peer mean. Operating profit margin reached 4.86 at 2008 which is almost as three times as the peers. especially, the return on asset rose to 12.94, comparing the peer mean at 2.73. In addition, with respect to asset utilization, it is obvious that Amazon.com has dramatically higher inventory turnover with 11.22, compared with peer mean of 3.95, which shows good ability of asset utilization. Moreover, in terms to leverage, Amazon.com took too much obligation in the long term in contrast to peer mean, with higher long term debt to common equity of 19.95 and long term debt to total capital of 16.3, while the peer mean has only 4.03 and 4.13 respectively. Furthermore, for the ability of liquidity, Amazon.com showed good financial information, with all of the liquidity ratios better than that of peer mean, as can be seen from the table. Essentially, the market valuation ratios P/B and P/CF of Amazon (8.22 and 22.54 respectively) overwhelmingly excess the peers mean with 3.00 and -57.66 respectively. Source: ThomsonFinancial Currency: USD PROFITABILIT Y RATIOS Return On Assets 5Yr Avg Cash Flow To Sales 5Yr Avg Gross Profit Margin 5Yr 22.92 23.26 23.77 23.16 20.79 19.21 5.28 5.53 5.44 3.66 -0.72 3.60 12/31/0 8 12/31/0 7 12/31/0 6 12/31/0 5 12/31/0 4 PEER MEAN 2008 12.94 12.17 9.53 3.21 -10.90 2.73

Avg Operating Profit Margin 5Yr Avg Pretax Margin 5Yr Avg Net Margin 5Yr Avg ASSET UTILIZATION Asset Turnover Inventory Turnover 12/31/0 LEVERAGE 8 12/31/0 7 12/31/0 6 12/31/0 5 12/31/0 4 PEER MEAN 2008 Total Debt to Common Equity LT Debt to Common Equity LT Debt to Total Capital Dividend Payout Cash Dividend Coverage Ratio #N/A #N/A #N/A #N/A #N/A 8.24 0.00 0.00 0.00 0.00 0.00 16.99 16.63 52.89 74.62 86.04 114.02 4.13 19.95 112.28 293.97 616.26 -813.08 4.03 22.16 113.70 297.68 617.48 -814.12 -667.42 12/31/0 8 12/31/0 7 12/31/0 6 12/31/0 5 12/31/0 4 PEER MEAN 2008 2.35 11.22 2.38 10.81 2.57 11.17 2.44 12.12 2.33 13.56 2.19 3.95 4.22 3.68 2.28 -1.71 -12.78 4.57 3.77 2.14 -1.94 -10.96 4.86 5.01 4.66 2.46 -3.46 1.47

12/31/2 LIQUIDITY 008

12/31/2 007

12/31/2 006

12/31/2 005

12/31/2 004

PEER MEAN 2008

Quick Ratio Current Ratio Cash Ratio Accounts Receivable Days Inventories Days Held MARKET VALUE RATIOS PE Ratio Close Earnings Yield Close Price To Book Ratio Close Price To Cash Flow Ratio

0.96 1.30 60.53 14.37

1.02 1.39 60.26 13.09

0.95 1.33 59.86 10.92

1.17 1.52 68.28 9.59

1.21 1.57 70.06 8.42

0.45 1.20 26.06 17.70

32.52

33.77

32.67

30.13

26.93

101.74

12/31/2 008

12/31/2 007

12/31/2 006

12/31/2 005

12/31/2 004

PEER MEAN 2008

34.42 2.91

82.71 1.21

87.69 1.14

60.45 1.65

31.86 3.14

8.22

32.58

38.33

82.39

-82.64

3.00

22.54

68.55

40.03

34.63

40.70

-57.66

The maturity of UK gilt 5-10 years created a large inflow. For stable and save return, the other 10 year treasury notes selected and include in our portfolio. First of all, the long term treasury has a higher rating of AAA which can less the default risk. In addition, as the WEO (world economic outlook) released by IMF projected, the economic will recover in the last quarter of 2011. And, as a matter of fact, US the major market for goods and still has the leading position in 10 years. Hence, we decide to hold the 10 years Treasury note.

Regression We use regression analysis to estimate whether our portfolio is related to the benchmark, Industrial Production, GDP and CPI in six-year time (from April 2003 to April 2009). Using the formula, we could get the regression analysis in Table I below:
Yt=b0+b1X1t+b2X2t+b3X3t+b4X4t+t

where
Yt=the monthly return of our portfolio X1t=the monthly return of the benchmark X2t=the monthly return of the Industrial Production X3t=the monthly return of the average GDP X4t=the monthly return of the average CPI

Here we choose the average GDP and CPI of the countries our portfolio involved (Australia, China, France, Germany, Japan, Spain, Switzerland, UK and US). As the worlds GDP and CPI are only announced annually, we use the monthly average GDP and CPI of these countries instead. That will increase the observations of our regression analysis in order to enhance the power of our regression analysis. The null hypothesis is that the coefficients on b1,b2,b3 and b4 equals 0 (H0:
b1,b2,b3,b4=0).

The table below shows the regression analysis of our portfolio. As the table shows, our portfolio has a significant relationship with Benchmark, little significant

relationship with GDP, no significant relationship with Industrial Production and CPI.

Table: Regression Analysis

SUMMARY OUTPUT Regression Statistics 0.624349 Multiple R R Square Adjusted R Square Standard Error Observations ANOVA Significan df Regression Residual Total 4 68 72 Coefficien ts 0.000900 Intercept X Variable 1 X Variable 2 182 0.304161 065 0.001310 872 0.0063329 22 0.0505313 37 0.0026471 28 SS 0.0211382 32 0.0330884 27 0.0542266 59 Standard Error t Stat 0.142143 177 6.019256 19 0.495205 178 0.887387 227 7.86902E08 0.622051 756 P-value Lower 95% 0.013537 331 0.203327 352 0.003971 0.011736 967 0.404994 777 0.006593 134 Upper 95% MS 0.005284 558 0.000486 595 F 10.86029 091 ce F 7.23897E07 698 0.389812 545 0.353919 166 0.022058 887 73

39 0.003727 X Variable 3 815 0.003123 X Variable 4 603 0.0028413 59 0.0051052 42 1.311983 03 0.611842 309 0.193937 761 0.542682 443 0.001942 029 0.013310 954 0.009397 659 0.007063 748

Multiple R is the indication of the relationship between two variables X and Y. If Multiple R is positive and close to one, the two variables have a strong relationship, and Y increases if X increased. If Multiple R is negative and is close to minus one, Y decreases when X increases. If Multiple R is close to zero, X and Y have a weak relationship. Coefficient is a constant multiplicative factor of a certain object. This regression has 73 observations and five coefficients (four independent variables and the intercept); therefore, the degree of freedom is 73-5=68. At the 0.05 significance level, the critical value for t-statistic is about 1.994. So we cannot reject the null hypothesis that b2,b3,b4=0. As the t-Stat of b1 is far above 1.994, we can reject the null hypothesis that b1=0. Thus multiple regression analysis suggests that our portfolio is closely associated with the benchmark, but not related to Industrial Production and CPI. For the average GDP, the t-Stat is 1.31, which means we could reject the null hypothesis at the significant level of 0.2 (therefore the critical value is 1.294).

Performance of Portfolio In the adjusted portfolio, the weight of stocks has been changed after 16 March by reallocated the cash to mainly financial and technology sectors. It showed that the greatest component was still contributed by the fixed income investment. Besides, there was a major change in the weight of the financial sector, increase from 3.89 to 9.6%.

Figure 1 Weight by company and weight by sector (before adjustment)

Figure 2 Weight by company and weight by sector (after adjustment)

Figure 3 Overview of Performance of Portfolio and Benchmark (before adjustment) Expected Return Variance Sharp Ratio Portfolio (Erp) 0.007321525 0.000209582 0.503559975 Benchmark(Erb) 0.004539619 0.000152992 0.364468662

Figure 4 Overview of Performance of Portfolio and Benchmark (after adjustment) Portfolio (Erp) Benchmark(Erb)

Expected Return Variance Sharp Ratio

0.114426603 0.000208159 7.712644738

0.079244068 0.000088927 -0.004060745

To analyze the performance of the portfolio, we should look into both the expected return and the risk of the portfolio. In figure 2, it showed that the expected return of the portfolio as at 30 April was 11.44%, while that of Benchmark was 7.92%. Significantly, the expected return of the portfolio slightly outperformed the Benchmark, both asset allocation and stock selection contributed positively. In the aspect of risk, the figure 2 showed the variance of the portfolio was 0.02%, which was higher than that of Benchmark. As the Benchmark possessed a higher component of bond (50%), it believed that it should be lower risk than the portfolio (29%) because the stability of the bond provided. Also, the sharp ratio comparison was consistent with that of the variance. It stated that the portfolio was higher risk than Benchmark in a large extent. In comparison with the performance before adjustment, it showed that the benchmarks expected return increased greatly from 0.45% to 7.92%, while the portfolios expected return increased from 0.73% to 11.44%. In addition, the excess return after adjustment also increased from 0.28% to 3.52%.

Figure 3 Expected returns of individual stocks

To analyze the contributor of the impressive performance, the expected returns of individual stocks should be the best indicator. Referring to figure 3, it could be seen that the highest return stock was JP Morgan Chase. The second highest was the newly added HSBC. This phenomenon could be explained by the recovery of the financial sector and the successful right issue of HSBC in March.

Also, the performance of technology sector was not bad as Cisco Systems and IBE contributed a lot.