10.03.19 Goldman Sachs - Using Sharpe Ratios

March 19, 2010 United States: Portfolio Strategy
US Portfolio Strategy
Using Sharpe Ratios to

enhance fund returns
Mutual funds are absolute return oriented
Most mutual fund managers are absolute return oriented at the micro
level but pursue a relative return strategy at the macro or fund level.
We believe managers could boost the long-term absolute returns of
their funds by incorporating stock-level risk-adjusted return metrics.
Managers may rethink 20% of their holdings

Investors tend to buy stocks with greatest upside to target price, but
focusing on high “Sharpe Ratio” stocks may cause managers to
reconsider 20% of their investments. Our analysis suggests this shift
may boost a fund’s information ratio and hit rate of outperformance.
"Sharpe ratio" strategy beats market and peers

A high “Sharpe Ratio” portfolio outperformed the S&P 500 72% of the
time over the past ten years by roughly 800 bp annually. Compared
with large-cap core mutual funds, our strategy consistently ranked in
the 2nd quartile on any given six-month period, but over time achieved
a top quartile track record due to consistency.
Buy high "Sharpe Ratio" stocks <GSTHSHRP>

Our sector-neutral basket of the 50 highest “Sharpe Ratio” stocks offers
nearly twice the expected return of the market (14% vs. 7%) for the
same risk. Basket has returned 10% vs. 6% for S&P 500 since early Dec.
Use risk-adjusted return for consistent absolute and relative performance

as of March 17, 2010
David J. Kostin
1.5
(212) 902-6781 | david.kostin@gs.com
Buy PFE
IRM CHK AES
Goldman Sachs & Co.
ADM QCOM RRD
1.0 ITW EQT IGT
ABT MON SWN
FPL WAG SLB EP
Risk Adjusted Return Ratio
We Recommend Managers SRE APD

HAL WDC
T RRC Nicole Fox
Pick Stocks this Way FCX
0.5 NBR (212) 357-1744 | nicole.fox@gs.com
THC
S Goldman Sachs & Co.
0.0 Sell CTAS

Caesar Maasry
LXK
HBANSTI CCE
ZIONODP TMK
(212) 902-9693 | caesar.maasry@gs.com
DTE
PAYX
SII PLDMI
F ROSTSLE Fund Managers Pick Stocks this Way
(0.5) SVU EQR GAS ARG Goldman Sachs & Co.
KIM
BJS
AVB AIV AEE Sell Buy
(1.0)
Amanda Sneider
(25)% (20)% (15)% (10)% (5)% 0% 5% 10 % 15 % 20 % 25 % 30 % 35 % 40 % 45 % 50 % (212) 357-9860 | amanda.sneider@gs.com
Up/(Down)side to Consensus Target Price Goldman Sachs & Co.
Source: Compustat, FactSet, Goldman Sachs Global ECS Research.
The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important
disclosures follow the Reg AC certification, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not
registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy Research
Goldman Sachs Global Economics, Commodities and Strategy Research 1
Table of contents
Executive summary – Sharpen your portfolio 3

The current state of affairs – Stock selection based on Target Prices 4
Stock selection – Look for high Sharpe Ratio opportunities 6
Back-test supports using risk adjusted metrics in stock selection 8
Comparing “Sharpe Ratio” with other strategies 10
Our recommended strategy: Sharpe Ratio Basket (<GSTHSHRP>) 11
Appendix A: S&P 500 ranked by “Sharpe Ratio” within sector 13
Appendix B: Sector Neutral Baskets using 3 different approaches 23
Disclosures 24
The Bottom Line: Our key forecasts for the S&P 500 index, recommended sector positioning and top trade ideas
S&P 500 Index Forecasts

2010 year-end price target 1,250 7% above current price level of 1166
S&P 500 EPS estimates 2008A 2009E 2010E 2011E

GS Portfolio Strategy top-down $50 $57 $76 $90
Growth (% year/year) (40) 15 33 20
Recommended Sector Positioning
Recommended GS Overweight / S&P 500 Total Return GS Alpha
S&P 500 Sector Positioning Underweight (a) Weight 2010 YTD
Information Technology 300 bp 19% 1% (11)bp

Energy Overweight 300 11 3 (7)
Materials 200 3 3 (4)
Consumer Staples 0 11 5 0
Industrials Neutral 0 10 11 0
Financials 0 16 11 0
Telecom Services (100) 3% (5) 9

Consumer Discretionary (200) 10 9 (8)
Underweight
Utilities (200) 4 (2) 14
Health Care (300) 12 3 6
S&P 500 0 bp 100% 5% (1)bp
Thematic Trade Recommendations
Initiation
Our best trade ideas: Portfolio Strategy thematic baskets (b) Date Return
BUY High Sharpe Ratio Basket (GSTHSHRP); SELL S&P 500
See 2010 Outlook: Cyclical start; defensive finish (7-Dec-09). 8-Dec-09 3.8 %
BUY High Operating Leverage (GSTHOPHI); SELL Low Operating Leverage (GSTHOPLO)
See Macro to Micro Shift Part II: 2H 2009 Update (20-Jul-09). 20-Jul-09 10.9 %
BUY BRICs Sales Basket (GSTHBRIC); SELL S&P 500
See Portfolio Passport: Coming to America (5-Nov-08). 4-May-09 13.8 %
(a) Sector weightings last rebalanced on 7-Dec-09. (b) US Portfolio Strategy baskets may be found on Bloomberg by typing <GSSU5>. The Bloomberg page provides
real-time basket performance and current basket constituents. To obtain access to our baskets on Bloomberg, please contact your Goldman Sachs salesperson. The
ability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of trade.
Source: FactSet and Goldman Sachs Global ECS Research.

Executive summary – Sharpen your portfolio

Mutual funds are actually more absolute return oriented than hedge funds. This
conclusion is both non-intuitive and certainly contrary to the widely held belief of most
market participants. Simply put, most mutual fund managers are absolute return investors
at the micro level while pursuing a relative return strategy at the macro or fund level.
Hedge fund managers follow the reverse approach; for example, micro discussions on
individual stocks are typically based on risk-adjusted returns while macro or overall fund
performance is measured on an absolute basis.
In practice, mutual fund managers tend to invest in stocks with the highest return to price
targets. We believe many mutual fund managers could boost the absolute returns of their
funds on a long-term basis by incorporating more relative risk-adjusted analysis at the
stock selection level. Specifically, we recommend managers utilize “Sharpe Ratios”.
Our analysis suggests a Sharpe Ratio strategy may cause core mutual fund managers
to rethink roughly 20% of their holdings. High target prices are positively correlated with
high Sharpe ratios. Stocks with high returns to target prices that mutual fund managers
tend to include in their portfolios also tend to be stocks that offer attractive risk adjusted
returns. In fact, we find about 80% overlap between the two stock selection methodologies.
Our research shows that 20% of the constituents of a portfolio would be different if stocks
were selected based on risk-adjusted potential return versus return to target price alone.
Based on the latest filings of the 200 largest large-cap core mutual funds, we find
portfolio managers may neglect a significant number of the high “Sharpe Ratio”
stocks. Currently, 25% of the 100 highest “Sharpe Ratio” stocks in the S&P 500 rank
among the stocks least commonly owned by large-cap core mutual funds.
For purposes of this report, we define a stock’s “Sharpe Ratio” as expected return
divided by implied volatility. We use consensus target price to calculate “expected
return” and “implied volatility” as a measure of risk. We recognize this ratio is different
from the one developed by William Sharpe which used return over a risk-free rate, but the
essence is similar. Our “Sharpe Ratio” gauges return per unit of risk on a prospective basis.
We back-tested the returns of a sector-neutral 50 stock portfolio comprised of the

highest “Sharpe Ratio” stocks in each sector. The strategy outperformed the S&P 500
by 440 bp on a semi-annual basis (not annualized returns) with an outperformance
“hit-rate” of 73% since 1999. The strategy generated a strong and consistent track record
through the business cycle with a 63% hit rate of outperformance in down markets and
80% hit rate of outperformance in up markets.
The long-term story is even more compelling. A central argument to adopting a “Sharpe
Ratio” strategy is that a risk adjusted portfolio outperforms on a multi-year horizon. In fact,
our “Sharpe Ratio” strategy outperformed most large-cap core funds over the past ten
years. Historically, in any given 6-month period, the Sharpe ratio strategy achieves a 59th
percentile ranking relative to core mutual funds. However, consistency is the key. This
consistent “second quartile” performance results in top quartile performance
compounded over the full ten year history (78th percentile cumulatively since 1999).
Based on current consensus estimates and implied volatility, our high “Sharpe Ratio”
basket of 50 stocks (Bloomberg <GSTHSHRP>) offers almost twice the expected
return of the median S&P 500 stock (14% vs. 7%) with the same risk (six-month
implied volatility of 27%). We introduced this strategy in our 2010 Outlook (Dec 7, 2009).
We continue to recommend investors buy this basket vs. the S&P 500. During the past
three months, the Sharpe Ratio basket outperformed the S&P 500 by 350 bp (10% vs. 6%)
and ranked in the 84th percentile relative to large-cap core mutual funds. The basket has
realized an average daily volatility of 1.00%, above that of the median fund (0.93%).

The current state of affairs – Stock selection based on Target Prices

Most mutual fund managers are absolute return investors at the micro or stock level
while pursuing a relative return strategy at the macro or fund level. Ironically, mutual
funds are actually more absolute return oriented than hedge funds. This conclusion is both
non-intuitive and certainly contrary to the widely held belief of most market participants.
The commonly-held perception is that mutual funds focus on performance relative to a

benchmark and also relative to other portfolio managers who follow a similar investment
style such as growth or value while hedge funds focus on total return.
Although the characterization of mutual funds as relative return-oriented is accurate on a

macro or aggregate portfolio level, it does not properly describe the micro or stock
selection process that most fund managers appear to use when identifying constituents to
populate their portfolios.
Investors naturally gravitate towards the highest return opportunities available in the
market. Analysts on both the buy side and sell-side typically rank-order the stocks in their
separate coverage universe by potential return to a target stock price in the future. The
target price may be established in a variety of ways such as dividend discount model
(DDM), multiple mean reversion or sum-of-the-parts. When risks are identified, they often
relate to future earnings, business model or economic risks.
In most cases, risks to the potential path of the share price are not addressed, a point
corroborated in discussions with many fund managers during the past several
months. It will come as no surprise to learn that many of the stocks with the highest
anticipated return to target price also have the highest potential risk-adjusted return. In fact,
the overlap averaged 79% during the past decade. Our research shows that roughly 20%
of the constituents of a portfolio would be different if stocks were selected based on
risk-adjusted potential return versus return to target price alone.
A clear pattern emerges when the S&P 500 is divided into quintiles and ordered by upside
to consensus target price: higher upside to target price is positively correlated with
higher implied volatility (risk), especially in the tail-ends of the distribution. Stocks with
large downside to consensus target prices also tend to have high implied volatility. This
suggests that managers should consider adopting a risk adjusted return strategy when
choosing stocks to overweight and underweight (see Exhibit 1).
Exhibit 1: Stocks with most upside to target price tend to be the riskier stocks in the market, as of March 17, 2010
70% 36%
Most Upside to
Target but High More Risk High Target Price
60% Implied Vol (Risk) stocks tend to have
34%
High Risk (implied volatility)
Implied Volatility (6-mo)
50%
32%
Implied Volatility
40%
30%
30%
28%
20%
10% 26%
Less Risk
0% 24%
(45)% (25)% (5)% 15 % 35 % 55 % Least Upside Most Upside
Upside to Consensus Target Price to Target to Target
S&P 500 Quintiles by Upside to Target Price
Source: Compustat, I/B/E/S, Goldman Sachs Global ECS Research.

In practice, mutual fund managers tend to invest in stocks with the highest return to
consensus price targets (see Exhibit 2). Based on the latest holdings data from the largest
200 large-cap core mutual funds with $1.1 trillion of equity assets, we find that the most
commonly held stocks tend to have an average upside to target price of 14% compared
with a 6% upside to stocks that are the least commonly owned among core managers.
High target prices are positively correlated with high Sharpe ratios. In general, stocks
with high upside to target price also offer a high risk adjusted return ratio (see Exhibits 2
and 3). Therefore, we find that the “high target price stocks” mutual fund managers tend
to include in their portfolios also tend to be stocks that offer attractive risk adjusted returns.
Exhibit 2: Managers own high target price stocks Exhibit 3: …these stocks also have high Sharpe ratios
as of March 17, 2010 as of March 17, 2010
16% 0.6 0.70
High Target Price Stocks
0.5 0.60 tend to have high

12% Risk-Adjusted Return Ratios
Avg. Upside Avg. Risk Adjusted 0.50
Target Price Return
0.4
to Target Price
Sharpe Ratio
Return Ratio
0.40
8% 0.3
0.30
0.2
4% 0.20
0.1
0.10
0% 0
5 4 3 2 1 0.00
LEAST Commonly MOST Commonly
Least Most
owned stocks owned stocks
Upside to Upside to
Target Target
S&P 500 Quintiles by Upside to Target Price
Source: I/B/E/S, Lionshare and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
We believe portfolio managers should evaluate potential stock investments on a

Sharpe Ratio basis rather than just looking at target prices. Even though the two
strategies tend to result in similar stock selection, a significant number of stocks that
screen well on a Sharpe Ratio basis are often overlooked by portfolio managers.
Our analysis suggests a Sharpe Ratio strategy may cause core mutual fund managers
to rethink roughly 20% of their holdings. Specifically, we find roughly 80% “cross-over”
between the risk-adjusted and absolute return strategies. We believe incorporating Sharpe
ratio analysis can make a meaningful difference to investment returns and managers
would be more likely to outperform the benchmark and their peers on a multi-year basis.
Exhibit 4: Target prices correlate with Sharpe Ratios Exhibit 5: 79% constituent overlap between strategies
as of March 17, 2010 as of March 17, 2010
95%
Investors may miss these stocks
Risk Adjsuted Return Ratio
1.3 with High Risk-Adjusted Returns 90%

but not necessarily
High Upside to Target 85%
0.8
10yr avg
80% = 79%
0.3 75%
70%
(0.2)
65%
(0.7) Stock Selection:
60%
R2 = 0.84 Picking High Target Prices vs. High Risk Adjusted Returns
(1.2) 55% (% of names in common, assuming 50-stock basket)
(40)% (20)% 0% 20 % 40 % 50%
Upside to Consensus Target Price
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10

Stock selection – Look for high Sharpe Ratio opportunities

Graphically, we believe mutual fund managers pick stocks from right to left along the
horizontal axis in the schematic below, whereas we recommend portfolio managers
select stocks from top to bottom along the vertical axis (see Exhibit 6).
As we have noted, a positive correlation exists between upside to consensus price target
and risk adjusted return ratio, implying the two approaches result in similar stock selection.
However, as evidenced in the scatter plot, a number of stocks that screen highly attractive
on a risk-adjusted return basis have less apparent absolute return potential compared with
peers that have greater upside to consensus price targets.
AT&T (T, Buy) and Sprint (S, Neutral) represent an example of this trade-off. Based on
consensus target prices, Sprint may rise 25% over the next 12 months while AT&T is
expected to return 14%. Portfolio managers ranking stocks based on this information alone,
would likely choose Sprint over AT&T in this case. However, we would favor AT&T given
its lower implied volatility and higher risk adjusted return ratio (0.75 vs. 0.46 for Sprint).
Our recommended strategy would favor any stock that appears vertically above a
potential substitute on the chart below, regardless of its horizontal position
(indicating potential upside to price target).
This remainder of this report reviews a variety of back-tests we conducted to evaluate the
efficacy of our strategy. Separately, we believe a similar logic would apply to selecting
stocks to underweight or short. Managers should consider implied volatility and select the
stocks with the most negative risk adjusted return, not just downside to price target.
Exhibit 6: We suggest PMs select stocks based on a risk adjusted return ratio strategy, not just targets, as of 17-Mar-10
1.5
We Recommend Managers IRM CHK
AES
Pick Stocks this Way PFE

RRD
ADM QCOM
1.0 Buy KO ABT
ITW
WAG
MON SLB
EQT IGT
SWN
XOM EP
T APD GOOGPTV DVNHAL WDC
AMAT
RRC
AMGN EXPE
FCX
NBR
0.5 THC
S
Sell
0.0
AKAMATI
ANF Fund Managers Currently
MI RF LXK NI
JNPR
Pick Stocks this Way
HBAN STI PSA CCE
ODP BA NOCDTE
ZION
PLD
F
VNO
ROSTPAYX
ARG
Sell Buy
SVU MTB HSY
(0.5) KIM EQR GAS
SII AIV
BJS AVB AEE
Most Commonly Owned Stock
Least Commonly Owned Stock
(1.0)
(25)% (20)% (15)% (10)% (5)% 0% 5% 10 % 15 % 20 % 25 % 30 % 35 % 40 % 45 % 50 %
Up/(Down)side to Consensus Target Price
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

We recommend investors focus on the highest “Sharpe Ratio” stocks in the market
that offer the best risk-adjusted return ratios. In particular, we would focus portfolio
managers’ attention on the stocks that appear to dodge most investors’ radar screens.
Based on the latest filings of the 200 largest large-cap core mutual funds, we find that
portfolio managers often underweight a significant number of the high “Sharpe Ratio”
stocks. Currently, 25% of the 100 highest “Sharpe Ratio” stocks in the S&P 500 rank
among the stocks least commonly owned by large-cap core mutual funds (see Exhibit
7). We define least commonly held as the bottom half of stocks when ranked by number of
large-cap core mutual funds that own the stock. Perhaps a related observation, we note
that 25 of the 100 top “Sharpe Ratio” stocks also do not appear on a list of the 100 stocks
with highest upside to consensus target price.
Individual managers and our own equity analysts often forecast price targets that are
different from consensus. However, we believe the process of analyzing stocks on a
Sharpe ratio basis is value added to all investors irrespective of specific price targets.
Exhibit 7: Top 100 S&P 500 stocks by Sharpe Ratio (highlighted stocks are least commonly owned), as of March 17, 2010
Highest Risk-Adjusted Return Ratio (Top 100 Stocks)

Upside to Risk-Adjusted YTD Upside to Risk-Adjusted YTD Upside to Risk-Adjusted YTD
Ticker Target Return Ratio Return Ticker Target Return Ratio Return Ticker Target Return Ratio Return
AES 47 % 1.28 (12)% CVX 15 % 0.75 (2)% HP 22 % 0.59 3%
IRM 30 1.25 16 PCG 13 0.75 (3) MHP 16 0.59 7
CHK 44 1.24 (3) GLW 23 0.75 (2) DNB 12 0.59 (12)
PFE 28 1.18 (4) EXPE 26 0.74 (11) EXC 12 0.59 (6)
RRD 31 1.13 (6) RRC 27 0.73 2 EIX 11 0.58 (0)
ADM 27 1.06 (7) JPM 20 0.73 5 MSFT 14 0.58 (2)
QCOM 28 1.05 (16) SYMC 20 0.72 (4) MOT 21 0.58 (6)
EQT 28 1.00 (0) NOV 24 0.72 2 CPWR 18 0.58 20
SWN 36 0.95 (11) MO 12 0.72 5 HPQ 14 0.58 2
ITW 22 0.95 (4) MMM 14 0.71 0 MFE 15 0.57 3
WAG 22 0.93 (6) BAC 24 0.70 15 IBM 11 0.57 (2)
MON 26 0.93 (11) GILD 18 0.70 9 ESRX 15 0.57 15
EP 31 0.92 14 WU 19 0.69 (11) AEP 10 0.57 1
IGT 31 0.92 (9) KSS 17 0.69 2 PEG 11 0.56 (6)
SLB 27 0.90 3 SNA 19 0.68 4 DELL 18 0.56 2
XOM 17 0.85 (1) FCX 26 0.67 1 PX 12 0.55 3
ABT 16 0.85 2 RSG 16 0.67 2 XTO 11 0.55 2
DVN 26 0.83 (8) JNJ 10 0.67 1 DGX 11 0.54 (5)
CB 17 0.82 4 BAX 13 0.65 (0) ZMH 14 0.54 (2)
WDC 32 0.82 (11) V 16 0.65 5 HRS 15 0.54 (2)
HAL 27 0.82 8 MHS 16 0.65 1 FLR 16 0.53 3
APD 20 0.81 (8) STT 21 0.65 6 NDAQ 15 0.53 3
KO 14 0.81 (5) PPL 14 0.65 (9) ALL 13 0.53 5
AMAT 26 0.80 (9) AMZN 23 0.64 (2) ETR 10 0.52 (1)
STR 23 0.80 7 NBR 26 0.64 (1) PG 9 0.52 6
PTV 22 0.80 5 DO 19 0.63 (9) INTC 13 0.52 10
AMGN 20 0.78 2 FE 13 0.63 (13) MRK 13 0.52 5
ECL 17 0.78 (2) CNP 11 0.62 1 WLP 16 0.52 6
GOOG 19 0.78 (9) ABC 14 0.62 8 CNX 23 0.51 (2)
WMB 24 0.78 10 LO 15 0.62 (3) HRB 15 0.51 (25)
SRE 16 0.77 (9) WMT 10 0.61 5
NRG 23 0.77 (5) KFT 12 0.61 9
FPL 14 0.76 (8) MS 20 0.61 2
FLIR 21 0.75 (18) AA 24 0.60 (10) S&P 500 7% 0.28 6%
T 14 0.75 (6) YHOO 16 0.59 (2) (median)
Note: Highlighted stocks are the least commonly owned by large-cap core mutual fund managers (defined as the bottom half of the S&P 500 when sorted by number
of core fund owners)
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research

Back-test supports using risk adjusted metrics in stock selection

We believe many mutual fund managers could boost the absolute returns of their
funds on a long-term basis by incorporating more relative risk-adjusted analysis at the
stock selection level. Importantly, making this adjustment potentially could help mutual
fund organizations to stem the tide of cash into ETFs and other passive investment
products by boosting the risk-adjusted return at the fund level vs. both a benchmark and
versus competitors.
We back-tested the performance of a sector-neutral 50 stock portfolio comprised of

the highest “Sharpe Ratio” stocks in each sector. The objective was to determine the
incremental return that might be gained by incorporating a measure of risk adjusted return
potential into the stock selection process. We defined risk-adjusted return as the ratio of
return to consensus target price divided by six-month implied volatility. We used the ratio
of historical consensus price targets and implied volatilities to calculate a historical time
series of Sharpe Ratios for S&P 500 stocks back to 1999. We recognize this ratio differs
from the one developed by William Sharpe which used return over a risk-free rate, but the
essence is similar. Our “Sharpe Ratio” gauges return per unit of risk on a prospective basis.
The strategy outperformed the S&P 500 by 440 bp on a semi-annual basis (not
annualized returns) with a “hit-rate” of 73% since 1999 (see Exhibit 8). High “Sharpe
Ratio” stocks generated a strong and consistent track record through the business cycle.
The “hit rate” of outperformance historically averaged 63% in a down market and 80% in
an up market (“up” and “down” periods measured over 6-month time horizon). We were
surprised to discover that the strategy outperformed 53% of the time during periods of
rising volatility and beat the S&P 500 90% of the time during periods of declining volatility
(as measured by the VIX). We would have thought a risk management strategy such as the
“Sharpe Ratio” would have offered a better track record in a rising volatility regime.
We recommend investors rebalance this strategy every 6 months. The starting month
affects the magnitude of the back-test results but it outperformed during all six-month
windows. The December/June rebalance has offered the best entry point historically,
which may reflect analysts’ renewed focus on target price and analysis at the start and
middle point of the year. Turnover of our portfolio averaged 72% on a six-month basis.
Exhibit 8: Back-test of “High Sharpe Ratio” stocks supports our recommendation, as of March 17, 2010
300
High "Sharpe Ratio" Stocks
Jun/Dec
Bloomberg <GSTHSHRP> 280 267
Semi-Annual Return vs. SPX Historical Performance of Jan/Jul
260
Indexed Relative Return (100 = Dec 99)
Maximum 4,031 bp High Sharpe Ratio Stocks 244

75th Percentile 571 240 (Relative return vs. SPX, 6-mo rebalancing)
Median 160 Feb/Aug
25th Percentile (29) 220 202
Minimum (1083) Mar/Sep
200
Standard Deviation 1,009 198
Avg. 6-mo excess return (bp) 440 bp 180 May/Nov
189
Hit rate of 6-month Apr/Oct
73 % 160
outperformance since 1999 168
Statistics by Rebalancing Month 140
Avg Excess Return Hit Rate
120
Jan/Jul 474 bp 81 %
Feb/Aug 420 62 100
Mar/Sep 427 80
Apr/Oct 406 65 80
May/Nov 414 65
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Jun/Dec 497 85
(6-mo returns shown, not annualized)

The long-term story is even more compelling, in our view. A central argument to
adopting a “Sharpe Ratio” strategy is that a risk adjusted portfolio outperforms on a multi-
year horizon, given the reduced risk of violent swings. We compared our “Sharpe Ratio”
strategy with the top 200 large-cap core mutual funds by assets to test our hypothesis.
Historically, in any given 6-month period, the Sharpe strategy achieves a 59th percentile
ranking relative to core mutual funds (see Exhibit 9). However, consistency is the key.
Consistent second quartile performance results in top quartile performance over the
full ten year history (78th percentile cumulatively since 1999). See Exhibit 10. Similarly,
on an “information ratio” basis, our “Sharpe” strategy ranked in the 74th percentile
compared with large-cap core mutual funds with a 10-year track record (see Exhibit 11).
Comparing the returns of our high “Sharpe Ratio” strategy with the historical returns of
the current largest 200 funds is all the more impressive given the large survivorship bias.
Only 118 of the funds have ten years of history, and they are likely to be the most
successful funds that survived two major bear markets.
We strongly believe portfolio managers should adopt a “Sharpe Ratio” or similar risk
metric into their stock selection process, especially given the renewed focus on longer
term (multi-year) performance which such a strategy is designed to address.
Exhibit 9: “Sharpe” averages 59th %-ile, as of 17-Mar-10 Exhibit 10: … But is 78th %-ile in the LT, as of 17-Mar-10
100% 90%
"Sharpe" vs. Mutual Funds "Sharpe" vs. Mutual Funds
Percentile vs. Core Funds
Percentile vs. Core Funds
(Short-Term Basis - 6 mo) (Long-Term Basis)

80%
80%
70%
60%
60%
Avg = 59th %-ile
40% 50%
40%
20%
"Sharpe Ratio" vs. Large-Cap Core Mutual Funds 30% "Sharpe Ratio" vs. Large-Cap Core Mutual Funds
(Percentile ranking on 6-month basis) (Percentile ranking on a cumulative basis)
0% 20%
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
Exhibit 11: Information Ratio of the high Sharpe ratio strategy vs. large cap core mutual funds, as of March 17, 2010
1.4
1.2 Information Ratio since 1999
"Sharpe Ratio" strategy vs. Large-Cap Core Mutual Funds
1.0
"Sharpe Ratio" Strategy
0.8
Information Ratio
Median Fund
0.6
0.4
0.2
0.0
(0.2)
Annualized Excess Return (vs. S&P 500)
(0.4)
Information Ratio =
(0.6) Annualized Std. Deviation of Excess Return
(0.8)
0 10 20 30 40 50 60 70 80 90 100 110
Large-Cap Core Mutual Funds

Comparing “Sharpe Ratio” with other strategies

Comparing the “Sharpe Ratio” strategy with other stock selection processes, we find
that our recommended strategy has historically generated the highest “hit rate” of
outperformance and “information ratio” (see Exhibit 12).
The “Target Price” strategy outlined below is our best assessment of how portfolio
managers currently select stocks. To back-test this strategy, we created a sector-neutral
50 stock basket of the stocks with highest upside to consensus target prices. Since 1999,
this strategy has averaged 495 bp of semi-annual outperformance relative to the S&P 500
with a 65% probability of outperforming.
Although the “Target Price” strategy offers a higher expected excess return compared
with our “Sharpe” strategy, the information ratio and hit rate of outperformance are
both lower. The explanation lies in the increased risk this strategy involves, as measured
by volatility. The standard deviation of the excess returns of this strategy is 28% above that
of our “Sharpe Ratio” recommendation (1,287 bp vs. 1,009 bp), resulting in a less
attractive outcome, in our view. We are not surprised at this result because, as we
discussed earlier, the stocks with highest return to target price tend to be the riskiest.
There are numerous ways to “risk adjust” a target price, the simplest of which may
be to adjust the target price itself. Our “Margin of Safety” back-test involves a 50 stock
basket, sector neutral to the S&P 500, comprised of the stocks with the most upside to the
consensus target price less one standard deviation. In other words, we are simply taking a
“conservative” target price. This strategy results in the lowest standard deviation of excess
returns compared with the other strategies and has a higher information ratio than a pure
“Target Price” strategy, but still appears less attractive than our “Sharpe Ratio” strategy in
terms of both information ratio and hit rate of outperformance.
Exhibit 12: Back-tests of other stock selection strategies – Sharpe Ratio offers best hit rate and information ratio
High "Sharpe Ratio" Stocks Target Price Strategy Margin of Safety Strategy
Bloomberg <GSTHSHRP> (Most upside to Target Price) (Most upside to Target less 1 std dev)
Semi-Annual Return vs. SPX Semi-Annual Return vs. SPX Semi-Annual Return vs. SPX
Maximum 4,031 bp Maximum 6,353 bp Maximum 3,986 bp
75th Percentile 571 75th Percentile 697 75th Percentile 673
Median 160 Median 210 Median 225
25th Percentile (29) 25th Percentile (245) 25th Percentile (175)
Minimum (1083) Minimum (1403) Minimum (1238)
Standard Deviation 1,009 Standard Deviation 1,287 Standard Deviation 924
Avg. 6-mo excess return (bp) 440 bp Avg. 6-mo excess return (bp) 495 bp Avg. 6-mo excess return (bp) 364 bp
Information Ratio (of 6-mo rets) 0.44 Information Ratio (of 6-mo rets) 0.38 Information Ratio (of 6-mo rets) 0.39
Hit rate of 6-month Hit rate of 6-month Hit rate of 6-month
73 % 65 % 64 %
outperformance since 1999 outperformance since 1999 outperformance since 1999
Statistics by Rebalancing Month Statistics by Rebalancing Month Statistics by Rebalancing Month
Avg Excess Return Hit Rate Avg Excess Return Hit Rate Avg Excess Return Hit Rate
Jan/Jul 474 bp 81 % Jan/Jul 454 bp 76 % Jan/Jul 330 bp 70 %
Feb/Aug 420 62 Feb/Aug 406 52 Feb/Aug 304 60
Mar/Sep 427 80 Mar/Sep 522 55 Mar/Sep 385 55
Apr/Oct 406 65 Apr/Oct 561 55 Apr/Oct 341 55
May/Nov 414 65 May/Nov 456 70 May/Nov 399 75
Jun/Dec 497 85 Jun/Dec 580 80 Jun/Dec 472 68
(6-mo returns shown, not annualized) (6-mo returns shown, not annualized) (6-mo returns shown, not annualized)

Our recommended strategy: Sharpe Ratio Basket (<GSTHSHRP>)

We introduced our basket of high Sharpe Ratio stocks (Bloomberg: <GSTHSHRP>) in
our 2010 Outlook report (December 7, 2009). We continue to recommend investors
buy this basket versus the S&P 500. Consistent with the back-test we outlined above, this
basket comprises 50 stocks, sector neutral, with the highest ratio of expected return to
implied volatility as of the creation date (December 2, 2010). We intend to rebalance the
basket in June.
Our 50 stock basket offers almost twice the expected return of the median S&P 500
stock (14% vs. 7%) with the same risk (six-month implied volatility of 27% vs. 28%)
based on current consensus price targets and implied volatility. The constituents of the
basket appear in Exhibit 13.
During the past three months, the basket has outperformed the S&P 500 by 350 bp
(10% vs. 6%), and has ranked in the 84th percentile relative to large-cap core mutual
funds. Since inception, the basket has realized an average daily volatility of 1.00%, above
that of the median fund (0.93%). The ratio of realized return to volatility of our basket also
ranks in the 84th percentile compared with large-cap core mutual fund returns over the
same period (see Exhibits 14-18).
Exhibit 13: Current Constituents of Goldman Sachs High Sharpe Ratio basket (Bloomberg: <GSTHSHRP>)
6-Mo Expected 6-Mo Expected
Current Expected Implied Return / Current Expected Implied Return /
Rating Price Return Vol Implied Vol Rating Price Return Vol Implied Vol
Consumer Discretionary Industrials
Kohl's Corp. KSS Buy $54.99 17 % 25 % 0.69 Iron Mountain Inc. IRM NC $26.39 30 % 24 % 1.25
Apollo Group APOL NC 64.01 21 41 0.51 R.R. Donnelley RRD NC 20.63 31 27 1.13
Target Corp. TGT Neutral 53.18 12 23 0.50 Snap-On Inc. SNA NC 43.53 19 28 0.68
Gannett Co. GCI NC 16.78 23 47 0.49 Fluor Corp. FLR Neutral 46.20 16 31 0.53
Comcast Corp. CMCSA Not Rated 17.58 9 27 0.36 Equifax Inc. EFX NC 35.15 3 24 0.14
Consumer Staples Information Technology

Altria Group, Inc. MO Neutral $20.33 12 % 17 % 0.72 Yahoo Inc. YHOO Neutral $16.50 16 % 28 % 0.59
Wal-Mart Stores WMT Buy 55.92 10 16 0.61 Compuware Corp. CPWR NC 8.71 18 31 0.58
Molson Coors Brewing TAP Neutral 43.46 11 23 0.49 Hewlett-Packard HPQ Buy 52.23 14 24 0.58
Dean Foods DF Neutral 15.90 13 34 0.38 McAfee Inc. MFE Neutral 41.75 15 26 0.57
Kroger Co. KR Neutral 22.44 8 23 0.35 Intel Corp. INTC Neutral 22.24 13 26 0.52
Coca-Cola Enterprises CCE Not Rated 27.23 (4) 21 (0.17) Xerox Corp. XRX NC 9.90 11 31 0.35
MEMC Electronic WFR NC 14.58 14 44 0.32
Energy Novell Inc. NOVL NC 5.77 3 31 0.10
Chesapeake Energy CHK Neutral $25.05 44 % 35 % 1.24 Electronic Arts ERTS CS 18.14 3 34 0.09
Southwestern Energy SWN Neutral 42.96 36 38 0.95
El Paso Corp. EP Neutral 11.20 31 33 0.92 Materials
Halliburton Co. HAL Buy* 32.52 27 33 0.82 Pactiv Corp. PTV Buy $25.24 22 % 28 % 0.80
Range Resources RRC NC 50.88 27 37 0.73 Owens-Illinois Inc OI Buy 34.99 10 34 0.28
XTO Energy XTO Neutral 47.59 11 20 0.55
Telecommunication Services
Financials AT & T Inc. T Buy $25.90 14 % 18 % 0.75
Chubb Corp. CB Neutral $50.74 17 % 21 % 0.82 MetroPCS PCS Neutral 6.91 14 49 0.28
JPMorgan Chase & Co. JPM Buy* 43.79 20 28 0.73
State Street Corp. STT Neutral 46.27 21 32 0.65 Utilities
NASDAQ OMX Group NDAQ Buy* 20.51 15 29 0.53 AES Corp. AES NC $11.76 47 % 37 % 1.28
Allstate Corp. ALL Sell 31.27 13 24 0.53 Allegheny Energy AYE Not Rated 23.67 0 20 0.01
Marsh & McLennan MMC Neutral 24.60 9 22 0.41
Northern Trust Corp. NTRS Neutral 55.80 6 24 0.26
Health Care
Amgen AMGN Buy $57.43 20 % 25 % 0.78
Gilead Sciences GILD Neutral 47.18 18 25 0.70
Baxter International Inc. BAX Neutral 58.34 13 20 0.65
Tenet Healthcare Corp. THC Buy* 5.66 26 52 0.50
Boston Scientific BSX Sell* 6.95 18 44 0.40 Basket Median 14 % 27 % 0.54
Cephalon Inc CEPH Buy 70.67 8 25 0.33 S&P 500 Median 7% 28 % 0.28

Exhibit 14: Total Returns (Sharpe vs. MF), as of 17-Mar-10 Exhibit 15: Avg. Vol (Sharpe vs. MF), as of 17-Mar-10
25 % 2.5%
Total Returns Avg. Daily Volatility
Avg. Daily Volatility (7-Dec-09 to 17-Mar-10)

Total Return (7-Dec-09 to 17-Mar-10)
20 % GSTHSHRP vs. "Sharpe" Strategy GSTHSHRP vs.

Top 200 Large-Cap 2.0% Top 200 Large-Cap
<GSTHSHRP>
Core Mutual Funds 9.9% Core Mutual Funds "Sharpe" Strategy
15 %
<GSTHSHRP>
S&P 500 1.5% S&P 500 1.00%
10 %
6.3% 0.90%
1.0%
5%
0.5%
0%
Lower Returns Higher Returns Lower Volatility Higher Volatility
(5)% 0.0%
0 20 40 60 80 100 120 140 160 180 200 0 20 40 60 80 100 120 140 160 180 200
Large-Cap Core Mutual Funds Large-Cap Core Mutual Funds
Source: FactSet, I/B/E/S, and Goldman Sachs Global ECS Research Source: Goldman Sachs Global ECS Research
Exhibit 16: Realized Risk Adjusted Returns GSTHSHRP vs. Core Funds, as of 17-Mar-10
16
14 Realized Risk Adjusted Returns "Sharpe" Strategy

(Return / Avg. Daily Volatility) <GSTHSHRP>
12
Return / Avg. Daily Volatility
07-Dec-09 to 17-Mar-10 9.9

S&P 500
10 GSTHSHRP vs. 7.0
8 Top 200 Large-Cap Core Mutual Funds
(2) Lower Sharpe Ratio Higher Sharpe Ratio

(4)
0 20 40 60 80 100 120 140 160 180 200
Large-Cap Core Mutual Funds
Source: FactSet, I/B/E/S, and Goldman Sachs Global ECS Research
Exhibit 17: Returns vs. Volatility, as of 17-Mar-10 Exhibit 18: Realized Risk-Adj. Returns, as of 17-Mar-10
2.5 20
Returns vs. Volatility Realized Risk-Adjusted Return Ratio

(07-Dec-09 to 17-Mar-10)
(Return / Realized Daily Volatility) .
(07-Dec-09 to 17-Mar-10) 16
2.0
Risk-Adjusted Return Ratio
Realized Daily Volatility
12
Better Risk Adjusted
GSTHSHRP
1.5
Higher Risk
8
Return
GSTHSHRP
1.0
4 S&P 500
S&P 500
0.5
0
Higher Return Higher Return
0.0 (4)
(8)% (4)% 0% 4% 8% 12 % 16 % 20 % 24 % (8)% (4)% 0% 4% 8% 12 % 16 % 20 % 24 %
Total Return Total Return

Appendix A: S&P 500 ranked by “Sharpe Ratio” within sector
Exhibit 19: S&P 500 Company valuation and Risk-Adjusted Return Ratio data, as of March 17, 2010
Upside to Risk-Adjusted
Market EPS Growth P/E Consensus Implied Return
Company Cap ($ bil) Beta 2009-10 2010-11 (NTM) Target Price Volatility Ratio
Sector Averages (equal-weighted)

Energy $29.5 1.4 18 % 37 % 20.7x 14 % 33 % 0.44
Telecommunication Services 32.9 1.1 9 12 18.2 10 30 0.41
Materials 11.9 1.4 14 27 17.1 9 31 0.33
Utilities 10.2 0.9 6 6 12.8 7 20 0.33
Health Care 25.5 0.8 9 12 15.2 9 26 0.32
Information Technology 29.1 1.1 22 17 18.3 10 31 0.32
Consumer Staples 32.2 0.6 10 9 14.9 5 22 0.28
Industrials 19.1 1.1 11 20 20.2 7 26 0.24
Consumer Discretionary 14.1 1.1 17 19 17.9 6 31 0.20
Financials 23.5 1.3 13 19 16.2 2 33 0.11
S&P 500 $22.2 1.1 14 % 18 % 17.3x 7% 29 % 0.27

Exhibit 20: S&P 500 Company valuation and Risk-Adjusted Return Ratio data, as of March 17, 2010
Market EPS Growth P/E Target Consensus Implied Return
Company Ticker Rating Price Cap ($ bil) Beta 2009-10 2010-11 (NTM) Price Target Price Volatility Ratio
Consumer Discretionary
International Game Technology IGT Neutral $17.04 $5.1 1.3 20 % 24 % 19.0x $22.29 31 % 34 % 0.92
Expedia Inc. EXPE Neutral 22.90 6.6 1.1 15 13 14.7 28.78 26 35 0.74
Kohl's Corp. KSS Buy 54.99 16.9 0.9 13 15 15.1 64.44 17 25 0.69
Amazon.com AMZN Buy 131.34 56.9 1.2 43 28 45.7 161.74 23 36 0.64
McGraw-Hill MHP Neutral 35.78 11.3 0.8 11 12 13.6 41.57 16 27 0.59
H&R Block HRB Neutral 16.87 5.7 0.9 7 9 12.1 19.43 15 30 0.51
Apollo Group APOL NC 64.01 9.9 1.0 18 19 12.3 77.44 21 41 0.51
Best Buy Co., Inc. BBY Neutral 40.11 16.7 1.1 8 7 12.2 45.90 14 28 0.51
Target Corp. TGT Neutral 53.18 40.0 0.8 10 16 14.7 59.41 12 23 0.50
Gannett Co. GCI NC 16.78 4.0 1.8 10 3 8.2 20.60 23 47 0.49
News Corporation NWSA Neutral 14.01 36.7 1.4 24 14 14.0 16.08 15 32 0.47
Staples Inc. SPLS Neutral 23.72 17.2 0.9 14 22 17.6 26.34 11 25 0.44
AutoNation, Inc. AN Sell 18.47 3.2 1.1 21 18 13.8 20.89 13 31 0.43
Lennar Corp LEN Neutral 16.64 3.1 1.9 NM NM NM 19.62 18 42 0.42
Newell Rubbermaid Co. NWL Neutral 15.77 4.4 1.2 9 12 11.0 17.77 13 30 0.42
Directv Group DTV Buy 34.35 32.9 0.9 52 28 15.6 37.94 10 26 0.40
Penney (J.C.) JCP Neutral 30.89 7.3 1.1 27 23 20.2 34.85 13 32 0.40
Leggett & Platt LEG NC 21.53 3.3 1.1 43 23 20.0 23.67 10 26 0.39
Time Warner Inc. TWX Buy 31.20 36.4 1.0 20 13 14.4 34.09 9 25 0.37
Time Warner Cable TWC Neutral 49.02 17.3 1.1 13 13 14.2 53.70 10 26 0.36
Comcast Corp. CMCSA Not Rated 17.58 50.2 1.2 (3) 16 14.2 19.25 9 27 0.36
O'Reilly Automotive ORLY Neutral 41.89 5.7 0.6 14 15 16.3 45.40 8 25 0.33
Omnicom Group OMC NC 39.78 12.4 1.0 6 13 14.9 42.71 7 22 0.33
Whirlpool Corp. WHR NC 88.61 6.6 1.4 59 9 12.9 97.83 10 32 0.33
Urban Outfitters URBN Buy 36.04 6.1 1.2 24 19 22.5 39.64 10 33 0.30
Tiffany & Co. TIF Neutral 47.39 5.9 1.2 14 12 20.7 51.56 9 29 0.30
McDonald's Corp. MCD Buy* 66.38 71.6 0.7 11 9 15.0 69.53 5 16 0.29
Goodyear Tire & Rubber GT Buy 13.53 3.3 1.8 NM NM 28.2 15.21 12 43 0.29
Mattel, Inc. MAT NC 23.21 8.4 0.9 20 9 14.3 24.93 7 26 0.28
Hasbro Inc. HAS NC 38.14 5.3 0.9 1 20 15.1 40.62 7 23 0.28
Polo Ralph Lauren RL Buy 81.99 8.1 1.3 9 18 17.9 88.27 8 28 0.28
Genuine Parts GPC Neutral 41.26 6.6 0.7 6 12 15.5 43.30 5 20 0.25
V.F. Corp. VFC Neutral 80.39 8.9 0.9 10 11 14.1 84.46 5 21 0.24
CBS Corp CBS Neutral 14.50 9.8 1.5 88 20 15.6 15.55 7 33 0.22
Bed Bath & Beyond BBBY Neutral 43.12 11.3 0.9 16 15 18.2 45.31 5 25 0.20
Discovery Communications DISCA NC 32.57 9.2 1.1 NM 19 20.0 34.34 5 27 0.20
TJX Companies Inc. TJX Buy* 43.10 18.1 0.8 14 12 13.5 45.00 4 23 0.19
D. R. Horton DHI Buy* 12.89 4.1 1.5 NM 18 NM 13.88 8 40 0.19
Interpublic Group IPG NC 8.54 4.2 1.4 82 45 25.1 9.14 7 37 0.19
Nordstrom JWN Neutral 39.91 8.7 1.2 26 16 16.0 42.29 6 32 0.19
Sherwin-Williams SHW Neutral 65.76 7.5 0.7 11 14 15.1 68.45 4 23 0.18
Lowe's Cos. LOW Neutral 25.16 37.0 1.0 9 21 18.0 26.25 4 25 0.17
Gap, Inc. GPS Sell 23.15 16.0 0.9 11 7 13.3 24.24 5 27 0.17
RadioShack Corp RSH Buy 22.01 2.8 1.1 10 9 12.4 23.42 6 38 0.17
Coach, Inc. COH Neutral 38.23 12.2 1.1 11 9 16.8 40.06 5 30 0.16
Priceline.com PCLN Buy 242.92 10.7 1.0 30 20 21.9 257.25 6 37 0.16
Pulte Homes, Inc. PHM Sell 11.47 4.4 1.5 NM NM NM 12.20 6 40 0.16
Darden Restaurants DRI Neutral 43.49 6.1 0.9 8 12 14.5 45.26 4 27 0.15
Home Depot HD Buy 32.52 55.3 0.9 9 18 17.8 33.52 3 22 0.14
Johnson Controls JCI Neutral 32.20 21.6 1.3 NM 24 17.0 33.50 4 28 0.14
Starbucks Corp. SBUX Neutral 25.56 19.0 1.1 30 14 23.1 26.57 4 28 0.14
Macy's Inc M Neutral 21.58 9.1 1.3 13 15 13.2 22.64 5 36 0.14
AutoZone Inc. AZO Neutral 172.00 8.6 0.5 15 13 12.0 176.45 3 20 0.13
Walt Disney Co. DIS Neutral 33.75 64.9 1.0 14 16 16.5 34.70 3 23 0.12
Yum! Brands, Inc YUM Buy 38.64 18.1 0.9 11 13 16.2 39.64 3 22 0.12
New York Times Cl. A NYT NC 11.42 1.7 1.9 NM 16 18.1 12.00 5 47 0.11
NIKE Inc. NKE Buy* 70.88 34.5 0.8 5 13 18.0 72.23 2 22 0.09
Harman International Industries Inc. HAR NC 43.59 3.0 1.2 NM 65 27.5 44.50 2 38 0.06
Limited Brands, Inc. LTD Neutral 24.68 8.0 1.2 24 15 16.3 25.07 2 33 0.05
Family Dollar Stores FDO Sell 36.09 5.0 0.6 15 11 14.4 36.35 1 28 0.03
Carnival Corp. CCL Sell 37.60 23.5 1.2 2 18 16.6 36.98 (2) 30 (0.05)
Marriott Int'l. MAR Buy 28.72 10.3 1.1 (1) 24 31.2 28.12 (2) 29 (0.07)
Harley-Davidson HOG Sell 28.18 6.6 1.6 NM 69 27.1 26.80 (5) 36 (0.14)
Abercrombie & Fitch ANF Buy 44.47 3.9 1.2 25 35 25.1 41.44 (7) 37 (0.19)
Wynn Resorts WYNN Neutral 72.81 9.0 1.6 NM 65 NM 66.87 (8) 42 (0.20)
Fortune Brands, Inc. FO Buy 49.75 7.5 1.3 10 25 18.4 46.14 (7) 26 (0.28)
Ford Motor F Buy* 14.10 46.6 1.6 NM 38 14.2 12.34 (12) 41 (0.31)
Starwood Hotels & Resorts HOT Buy* 42.50 7.9 1.3 (36) 46 63.4 38.18 (10) 33 (0.31)
Office Depot ODP Neutral 8.17 2.2 1.8 NM NM NM 6.88 (16) 48 (0.33)
Ross Stores Inc ROST Neutral 53.96 6.8 0.9 13 12 13.9 49.09 (9) 26 (0.35)
Eastman Kodak EK NC 6.00 1.6 1.9 NM NM 9.2 4.33 (28) 60 (0.46)
Sears Holding Corp. SHLD Sell 104.77 12.1 1.3 10 4 43.8 66.80 (36) 36 (1.01)
Big Lots, Inc. BIG NC 37.10 3.1 0.8 16 13 13.6 41.20 11 NA
GameStop Corp. GME Neutral 19.86 3.3 1.2 13 8 8.3 24.80 25 NA
DeVry Inc. DV NC 67.00 4.8 0.7 34 21 16.3 71.00 6 NA
Meredith Corp. MDP NC 33.61 1.5 1.2 10 12 14.6 37.25 11 NA
Scripps Network Interactive SNI Neutral 41.47 6.9 1.0 16 17 20.1 44.69 8 NA
Washington Post WPO NC 448.82 4.2 0.9 NM NM NM 480.00 7 NA
Viacom Inc. VIA.B Buy 31.09 18.9 1.0 NM 8 11.4 35.80 15 NA
Wyndham Worldwide WYN Neutral 24.16 4.3 1.1 (10) 14 15.2 26.50 10 NA

Exhibit 20 cont'd: S&P 500 Company valuation and Risk-Adjusted Return Ratio data, as of March 17, 2010
Consumer Staples
Archer-Daniels-Midland ADM NC $29.10 $18.7 0.8 (1)% 1% 10.1x $37.00 27 % 26 % 1.06
Walgreen Co. WAG Neutral 34.48 34.1 0.7 15 17 14.5 42.17 22 24 0.93
Coca-Cola Co. KO Not Rated 53.84 124.8 0.6 11 9 16.0 61.62 14 18 0.81
Altria Group, Inc. MO Neutral 20.33 42.1 0.4 7 7 11.0 22.83 12 17 0.72
Lorillard LO Buy 76.95 12.4 0.5 10 8 12.1 88.13 15 23 0.62
Wal-Mart Stores WMT Buy 55.92 213.1 0.5 9 9 14.0 61.56 10 16 0.61
Kraft Foods KFT Neutral 29.70 51.5 0.6 21 12 14.3 33.18 12 19 0.61
Procter & Gamble PG Neutral 64.01 187.0 0.4 (2) 4 16.7 69.76 9 17 0.52
PepsiCo Inc. PEP Buy 66.57 108.2 0.6 17 11 15.9 72.46 9 17 0.51
Kellogg Co. K Neutral 52.96 20.1 0.5 13 9 14.8 57.19 8 16 0.50
Kimberly-Clark KMB Sell* 60.93 25.3 0.5 9 7 12.6 65.92 8 17 0.49
Avon Products AVP Sell 32.91 14.1 1.2 19 16 16.2 37.27 13 27 0.49
Molson Coors Brewing Co. TAP Neutral 43.46 8.0 0.7 (7) 6 12.5 48.45 11 23 0.49
CVS Corp. CVS Buy 35.21 49.7 0.8 6 11 12.6 38.88 10 25 0.42
Philip Morris Intl PM Buy* 51.83 98.7 0.6 16 10 13.5 56.25 9 21 0.40
Dean Foods DF Neutral 15.90 2.9 0.7 (3) 10 10.3 17.94 13 34 0.38
Constellation Brands STZ Neutral 16.24 3.6 0.9 7 9 9.5 17.89 10 28 0.37
Kroger Co. KR Neutral 22.44 14.6 0.6 1 13 12.4 24.27 8 23 0.35
Costco Co. COST Neutral 61.33 26.7 0.6 12 11 20.1 64.78 6 18 0.30
General Mills GIS Neutral 73.17 23.9 0.4 11 9 15.5 77.00 5 18 0.30
Clorox Co. CLX Neutral 64.64 9.0 0.4 10 8 14.7 68.00 5 18 0.29
McCormick & Co. MKC NC 38.89 5.1 0.5 7 8 15.4 40.56 4 17 0.25
Colgate-Palmolive CL Buy* 84.63 42.1 0.5 11 10 17.4 88.38 4 19 0.24
Reynolds American Inc. RAI Sell 53.13 15.5 0.5 5 5 10.9 55.43 4 20 0.22
Campbell Soup CPB Neutral 35.13 12.1 0.5 9 7 13.9 36.38 4 18 0.20
Hormel Foods HRL NC 41.57 5.6 0.3 8 7 15.3 42.50 2 18 0.12
Heinz (H.J.) HNZ NC 47.57 15.0 0.5 5 10 16.1 48.18 1 16 0.08
Sysco Corp. SYY Neutral 29.06 17.2 0.6 5 5 15.2 29.29 1 19 0.04
Estee Lauder EL Neutral 63.93 12.6 0.8 44 16 22.0 63.67 (0) 27 (0.02)
Safeway Inc. SWY Buy 25.33 10.3 0.7 5 13 14.0 24.94 (2) 25 (0.06)
Tyson Foods TSN NC 17.70 6.7 0.6 NM 1 13.4 17.33 (2) 29 (0.07)
ConAgra Foods, Inc. CAG NC 25.76 11.4 0.6 11 8 14.1 25.30 (2) 18 (0.10)
Coca-Cola Enterprises CCE Not Rated 27.23 13.3 0.7 9 11 15.6 26.23 (4) 21 (0.17)
Whole Foods Market Inc. WFMI Neutral 36.94 6.3 0.9 63 13 28.5 33.47 (9) 36 (0.26)
Sara Lee Corp. SLE Not Rated 14.01 9.8 0.6 14 8 12.8 13.06 (7) 23 (0.29)
The Hershey Company HSY Sell 43.15 9.8 0.7 7 7 18.6 39.00 (10) 24 (0.40)
Supervalu Inc. SVU Neutral 17.47 3.7 1.1 (9) 9 9.0 14.36 (18) 34 (0.52)
Brown-Forman Corp. BF.B Sell 56.46 8.4 0.6 6 8 17.2 55.71 (1) NA
Mead Johnson Nutrition MJN Buy 51.41 10.5 0.7 5 15 21.6 51.50 0 NA
JM Smucker Co. SJM Neutral 60.23 7.2 0.6 7 8 14.3 66.55 10 NA
Dr. Pepper Snapple Group DPS Neutral 36.68 9.3 0.8 19 9 15.8 36.36 (1) NA

Energy
Chesapeake Energy Corp. CHK Neutral $25.05 $16.2 1.7 16 % 4% 8.4x $36.04 44 % 35 % 1.24
Southwestern Energy SWN Neutral 42.96 14.8 1.5 45 32 19.4 58.43 36 38 0.95
El Paso Corp. EP Neutral 11.20 7.9 1.5 (30) 17 12.6 14.65 31 33 0.92
Schlumberger Ltd. SLB Not Rated 66.60 80.0 1.4 4 29 23.0 84.40 27 30 0.90
Exxon Mobil Corp. XOM Neutral 67.36 319.8 1.0 45 26 11.3 78.69 17 20 0.85
Devon Energy Corp. DVN Buy 67.17 29.8 1.4 65 10 10.9 84.50 26 31 0.83
Halliburton Co. HAL Buy* 32.52 29.3 1.6 8 52 24.1 41.36 27 33 0.82
Williams Cos. WMB NC 23.10 13.5 1.4 51 25 16.0 28.75 24 32 0.78
Chevron Corp. CVX Neutral 74.67 149.8 1.1 67 23 9.2 86.20 15 21 0.75
Range Resources Corp RRC NC 50.88 8.0 1.5 (21) 99 62.8 64.63 27 37 0.73
National Oilwell Varco NOV Neutral 44.66 18.7 1.6 (18) 6 14.0 55.53 24 34 0.72
Nabors Industries Ltd. NBR Neutral 21.68 6.1 1.8 (15) 53 20.6 27.31 26 41 0.64
Diamond Offshore Drilling DO Neutral 87.37 12.1 1.5 (12) 7 10.2 103.65 19 30 0.63
Helmerich & Payne HP Buy 41.07 4.3 1.7 (22) 10 18.3 49.92 22 36 0.59
XTO Energy XTO Neutral 47.59 27.6 1.3 (44) 18 21.9 52.83 11 20 0.55
Consol Energy Inc. CNX Buy 48.58 8.8 1.8 11 42 14.0 59.60 23 44 0.51
Marathon Oil Corp. MRO Neutral 32.33 22.9 1.3 NM 40 9.3 36.79 14 27 0.51
Apache Corp. APA Neutral 106.18 35.7 1.2 66 26 11.5 119.95 13 28 0.46
Hess Corp. HES Buy 62.65 20.5 1.4 88 31 15.0 71.29 14 31 0.45
Anadarko Petroleum APC Neutral 73.14 35.9 1.3 NM 72 44.1 83.26 14 32 0.43
Noble Energy NBL Sell 76.16 13.2 1.2 2 35 23.4 85.35 12 30 0.40
Murphy Oil MUR Neutral 55.62 10.6 1.3 45 38 12.1 62.00 11 29 0.39
Baker Hughes BHI Not Rated 51.86 16.1 1.4 4 55 25.5 58.67 13 34 0.39
Occidental Petroleum OXY Buy* 83.21 67.5 1.2 55 27 14.1 92.12 11 28 0.39
ConocoPhillips COP Neutral 52.98 78.6 1.1 62 28 8.9 57.79 9 24 0.38
Cameron International Corp CAM Neutral 44.33 10.8 1.5 (3) 22 19.9 49.95 13 34 0.37
Denbury Resources Inc. DNR NC 16.03 6.3 1.7 56 64 23.2 18.44 15 40 0.37
Peabody Energy Corp. BTU Buy 49.73 13.3 1.7 55 38 16.8 56.80 14 40 0.36
Pioneer Natural PXD Neutral 53.29 6.1 1.5 NM 52 32.2 60.00 13 37 0.34
EOG Resources EOG Buy 95.81 24.2 1.4 5 97 30.4 105.80 10 32 0.32
Rowan Cos. RDC Neutral 27.85 3.2 1.7 (21) (17) 12.0 29.64 6 37 0.17
Massey Energy Co. MEE Neutral 53.15 4.5 2.0 NM 71 20.0 55.06 4 50 0.07
FMC Technologies FTI Neutral 63.60 7.8 1.4 (9) 18 24.4 64.13 1 33 0.03
Valero Energy VLO Sell 20.66 11.7 1.3 NM NM 18.1 20.45 (1) 33 (0.03)
Tesoro Corp. TSO Neutral 14.22 2.0 1.5 NM NM NM 13.80 (3) 40 (0.07)
Sunoco., Inc. SUN Sell 30.68 3.6 1.3 NM 87 19.9 28.56 (7) 33 (0.21)
Smith International Inc. SII Not Rated 45.13 11.2 1.4 35 71 42.0 37.28 (17) 34 (0.51)
BJ Services BJS Not Rated 23.40 6.9 1.2 (7) 100 42.5 18.75 (20) 32 (0.62)
Cabot Oil & Gas Corp. COG Neutral 41.62 4.3 1.4 (27) (2) 31.7 54.00 30 NA
Spectra Energy Corp. SE Buy* 22.45 14.5 1.0 28 15 15.2 24.59 10 NA

Financials
Chubb Corp. CB Neutral $50.74 $17.3 0.8 (10)% 2% 9.3x $59.33 17 % 21 % 0.82
JPMorgan Chase & Co. JPM Buy* 43.79 172.6 1.4 34 62 14.1 52.76 20 28 0.73
Bank of America Corp. BAC Buy* 17.27 171.6 1.5 NM NM 20.4 21.40 24 34 0.70
State Street Corp. STT Neutral 46.27 22.9 1.4 (16) 29 12.7 55.86 21 32 0.65
Morgan Stanley MS Neutral 30.28 41.2 1.7 NM 18 9.8 36.45 20 33 0.61
NASDAQ OMX Group NDAQ Buy* 20.51 4.3 1.2 10 12 10.2 23.65 15 29 0.53
Allstate Corp. ALL Sell 31.27 16.8 1.0 15 9 7.8 35.22 13 24 0.53
Franklin Resources BEN Buy* 111.47 25.6 1.2 46 17 17.4 124.86 12 26 0.46
Bank of New York BK Neutral 30.69 37.0 1.2 10 19 12.9 34.45 12 27 0.45
Marsh & McLennan MMC Neutral 24.60 13.0 0.7 10 15 14.3 26.76 9 22 0.41
Moody's Corp MCO Neutral 28.74 6.8 1.2 9 15 15.5 32.50 13 32 0.41
Travelers Cos. Inc. TRV Buy 52.99 29.0 0.7 (7) 1 9.1 57.53 9 21 0.40
Capital One Financial COF Neutral 40.25 18.1 1.6 NM 83 20.6 45.85 14 38 0.37
XL Capital XL Buy 19.46 6.7 1.1 (5) 0 7.6 21.73 12 32 0.36
American Express AXP Neutral 41.01 48.8 1.2 71 19 15.4 45.16 10 29 0.35
Citigroup Inc. C Neutral 4.05 114.5 1.7 NM NM 57.9 4.60 14 44 0.31
Discover Financial Services DFS Buy 15.24 8.3 1.5 NM NM 21.2 16.85 11 36 0.30
MetLife Inc. MET Not Rated 43.03 35.2 1.4 47 17 10.3 46.85 9 31 0.29
Ameriprise Financial AMP NC 44.88 11.4 1.2 24 27 12.4 48.56 8 30 0.28
SLM Corporation SLM NC 12.55 6.0 1.8 61 (3) 8.2 14.00 12 42 0.28
IntercontinentalExchange Inc. ICE Neutral 109.45 8.0 1.2 20 15 20.3 119.74 9 35 0.27
Hudson City Bancorp Inc. HCBK Sell 14.05 7.4 0.8 12 10 11.9 14.92 6 24 0.26
Northern Trust Corp. NTRS Neutral 55.80 13.5 1.1 3 20 17.0 59.28 6 24 0.26
Charles Schwab SCHW Neutral 18.49 21.5 1.1 (1) 64 26.0 19.84 7 29 0.25
Prudential Financial PRU Neutral 57.59 26.7 1.5 0 16 10.3 62.13 8 31 0.25
Chicago Merc Exch Holdings CME Buy 316.00 21.0 1.2 16 15 20.2 340.89 8 32 0.25
Assurant Inc. AIZ NC 33.50 3.9 1.0 5 10 8.1 35.71 7 28 0.24
U.S. Bancorp USB Neutral 26.21 50.1 1.0 65 44 16.1 27.80 6 26 0.23
Wells Fargo WFC Buy 30.55 156.1 1.2 11 48 15.6 32.48 6 29 0.22
Plum Creek Timber Co. PCL Neutral 38.57 6.3 1.2 (3) 7 28.1 40.40 5 23 0.20
Progressive Corp. PGR Buy 17.89 12.1 0.8 (8) 8 12.6 18.65 4 22 0.20
Lincoln National LNC Buy 29.73 9.0 1.7 10 13 8.6 31.87 7 37 0.20
Janus Capital Group JNS Buy 14.35 2.6 1.6 NM 20 18.6 15.36 7 39 0.18
E*Trade Financial Corp. ETFC Buy 1.67 3.1 1.9 NM NM NM 1.82 9 58 0.15
T. Rowe Price Group TROW Neutral 55.25 14.2 1.2 52 16 22.4 57.33 4 27 0.14
Federated Investors Inc. FII Sell* 26.32 2.7 1.1 4 8 13.3 27.09 3 27 0.11
Nyse Euronext NYX Neutral 29.59 7.7 1.2 14 15 12.8 30.55 3 30 0.11
Principal Financial Group PFG Neutral 27.76 8.9 1.6 0 10 10.4 28.69 3 36 0.09
AFLAC Inc. AFL Coverage S 54.64 25.6 1.1 10 9 10.2 56.00 2 27 0.09
PNC Bank Corp. PNC Neutral 59.96 31.0 1.3 (4) 31 15.9 61.14 2 29 0.07
Hartford Financial Svc.Gp. HIG Sell 28.58 10.9 1.7 NM 7 7.4 29.25 2 39 0.06
First Horizon National FHN Neutral 13.93 3.1 1.2 NM NM NM 14.11 1 32 0.04
UnumProvident Corp. UNM Buy 24.43 8.1 1.3 5 11 9.0 24.64 1 28 0.03
Simon Property Group, Inc SPG Rating Susp 85.65 24.4 1.4 (4) 15 16.0 85.25 (0) 31 (0.02)
Legg Mason Inc LM Neutral 30.37 4.9 1.7 NM 18 22.2 30.17 (1) 34 (0.02)
Comerica Inc. CMA Buy 38.24 6.7 1.2 NM NM NM 37.50 (2) 31 (0.06)
Genworth Financial Inc. GNW NC 16.40 8.0 1.6 NM 65 14.3 15.83 (3) 45 (0.08)
Cb Richard Ellis Group Inc CBG Neutral 14.93 4.8 1.8 23 52 32.8 14.40 (4) 42 (0.08)
KeyCorp KEY Neutral 7.90 6.9 1.6 NM NM NM 7.52 (5) 44 (0.11)
Fifth Third Bancorp FITB Buy 13.70 10.9 1.3 NM NM NM 12.82 (6) 40 (0.16)
Torchmark Corp. TMK Neutral 53.73 4.4 1.1 2 6 8.8 51.23 (5) 26 (0.18)
Public Storage PSA Neutral 91.74 15.6 1.1 (11) 4 18.5 86.62 (6) 24 (0.23)
Regions Financial Corp. RF Neutral 7.70 9.1 1.6 NM NM NM 6.90 (10) 42 (0.25)
BB&T Corporation BBT Neutral 32.16 22.1 1.1 26 72 22.0 29.91 (7) 27 (0.26)
Marshall & Ilsley Corp. MI Sell 8.34 4.4 1.8 NM NM NM 7.32 (12) 47 (0.26)
SunTrust Banks STI Buy* 28.09 14.0 1.3 NM NM NM 25.09 (11) 37 (0.29)
Huntington Bancshares HBAN Neutral 5.76 4.1 1.3 NM NM NM 4.99 (13) 45 (0.30)
Hcp Inc HCP Buy 33.80 9.9 1.2 0 4 15.6 30.70 (9) 27 (0.34)
Vornado Realty VNO Neutral 76.26 13.7 1.4 12 6 15.4 67.88 (11) 30 (0.36)
M&T Bank Corp. MTB NC 82.79 9.8 1.1 47 22 19.6 74.22 (10) 29 (0.36)
Zions Bancorp ZION Neutral 23.19 3.2 1.6 NM NM NM 19.27 (17) 46 (0.37)
ProLogis PLD Sell 14.52 6.9 1.8 (53) 4 18.9 12.30 (15) 38 (0.40)
Equity Residential EQR Buy 39.91 11.0 1.3 (4) 4 19.5 34.55 (13) 29 (0.46)
Apartment Investment & Mgmt'A' AIV Neutral 18.35 2.1 1.7 3 8 14.2 15.27 (17) 31 (0.54)
Kimco Realty KIM Neutral 15.90 6.4 1.6 34 2 14.2 12.96 (18) 34 (0.54)
AvalonBay Communities AVB Neutral 89.51 7.3 1.3 (4) 3 24.0 74.29 (17) 28 (0.60)
Aon Corp. AON Neutral 42.02 11.5 0.5 6 11 12.6 45.00 7 NA
Berkshire Hathaway Inc. BRK.B NC 82.50 203.7 NM 15 9 21.0 NA
Boston Properties BXP Buy 77.14 10.7 1.3 (11) 5 18.5 72.92 (5) NA
Cincinnati Financial CINF NC 29.11 4.7 0.6 33 10 16.4 27.67 (5) NA
People's United Financial PBCT Neutral 15.61 5.8 0.7 42 34 38.1 18.11 16 NA
Host Hotels & Resorts Inc. HST Neutral 13.64 8.6 1.7 10 29 24.6 12.30 (10) NA
Invesco Ltd. IVZ Not Rated 21.41 9.2 1.6 66 29 17.0 25.73 20 NA
Ventas Inc VTR NC 47.92 7.5 1.1 2 6 17.5 44.18 (8) NA
Loews Corp. L NC 37.60 16.2 0.9 11 10 9.8 41.00 9 NA
Leucadia National Corp. LUK NC 25.59 6.2 1.3 NM NM NM 30 NA
Health Care REIT HCN Neutral 46.21 5.7 1.0 2 6 14.5 44.75 (3) NA

Health Care
Pfizer, Inc. PFE Buy* $17.21 138.9 0.9 8% 5% 7.9x $21.97 28 % 23 % 1.18
Abbott Labs ABT Buy 54.50 84.3 0.5 14 13 12.9 63.07 16 19 0.85
Amgen AMGN Buy 57.43 58.1 0.7 4 7 11.2 68.76 20 25 0.78
Gilead Sciences GILD Neutral 47.18 42.5 0.7 18 10 13.1 55.46 18 25 0.70
Johnson & Johnson JNJ Neutral 64.65 178.4 0.5 6 9 13.2 71.00 10 15 0.67
Baxter International Inc. BAX Neutral 58.34 35.2 0.7 11 11 13.8 65.86 13 20 0.65
Medco Health Solutions Inc. MHS Neutral 64.60 30.8 0.8 18 19 19.3 74.80 16 24 0.65
AmerisourceBergen Corp. ABC Buy 28.20 8.1 0.7 16 10 14.1 32.26 14 23 0.62
Express Scripts ESRX Buy 99.01 27.2 0.9 37 26 20.1 114.33 15 27 0.57
Quest Diagnostics DGX Sell 57.49 10.6 0.8 9 10 13.7 64.00 11 21 0.54
Zimmer Holdings ZMH Neutral 57.64 12.3 1.0 8 10 13.5 65.62 14 26 0.54
Merck & Co. MRK Buy* 38.08 116.3 0.9 5 16 11.2 42.97 13 25 0.52
WellPoint Inc. WLP Neutral 61.94 28.4 1.0 1 11 10.1 71.92 16 31 0.52
Tenet Healthcare Corp. THC Buy* 5.66 2.7 1.8 43 20 27.0 7.12 26 52 0.50
McKesson Corp. MCK Neutral 62.96 16.9 0.8 3 9 13.4 70.13 11 23 0.49
United Health Group Inc. UNH Buy 32.75 38.1 1.0 (6) 10 10.6 38.07 16 36 0.46
Dentsply International XRAY NC 34.67 5.3 0.9 7 9 17.6 38.20 10 23 0.45
DaVita Inc. DVA NC 63.39 6.5 0.7 9 7 14.4 69.33 9 23 0.41
Thermo Electron TMO NC 49.97 20.4 0.7 11 10 14.7 55.00 10 25 0.40
Boston Scientific BSX Sell* 6.95 10.5 1.0 (14) 26 15.8 8.17 18 44 0.40
Laboratory Corp. of America Holdi LH Neutral 75.71 8.0 0.7 11 11 13.9 81.29 7 20 0.36
Aetna Inc. AET Neutral 31.74 13.8 1.1 (3) 17 11.6 35.67 12 36 0.34
Medtronic Inc. MDT Neutral 44.95 49.8 0.9 10 10 13.1 48.74 8 25 0.34
Cephalon Inc CEPH Buy 70.67 5.3 0.8 9 10 10.8 76.54 8 25 0.33
Stryker Corp. SYK Neutral 56.27 22.4 0.8 11 13 17.2 60.17 7 21 0.32
King Pharmaceuticals KG Neutral 12.44 3.1 1.0 (14) 11 13.4 13.81 11 36 0.31
Humana Inc. HUM Neutral 48.23 8.2 1.0 (11) 1 8.8 53.45 11 36 0.30
Watson Pharmaceuticals WPI Sell 40.63 4.3 0.8 19 11 12.6 43.42 7 23 0.30
St Jude Medical STJ Sell 39.93 13.3 0.7 13 13 14.5 43.00 8 27 0.28
Cardinal Health, Inc. CAH Buy 35.49 12.9 0.8 (19) 11 15.8 37.53 6 23 0.25
Forest Laboratories FRX Sell 31.67 9.6 0.9 7 8 8.7 33.90 7 28 0.25
Varian Medical Systems VAR NC 53.32 6.6 0.7 7 11 18.4 56.71 6 25 0.25
CIGNA Corp. CI Buy* 34.83 9.5 1.2 1 8 8.6 38.00 9 37 0.25
Patterson Companies Inc. PDCO NC 30.98 3.8 0.8 8 9 16.3 32.78 6 25 0.24
Allergan, Inc. AGN Neutral 63.81 19.6 0.7 13 14 20.4 67.27 5 23 0.23
Mylan Laboratories MYL Neutral 22.10 6.8 0.9 23 23 13.9 23.36 6 26 0.22
Waters Corporation WAT NC 65.42 6.2 0.7 10 11 17.2 68.44 5 25 0.19
Celgene Corp. CELG Sell 64.71 29.7 0.9 26 23 24.4 67.52 4 29 0.15
Becton, Dickinson BDX Sell 79.24 18.8 0.7 5 10 15.2 81.35 3 19 0.14
Eli Lilly & Co. LLY Sell 36.22 41.6 0.7 7 3 7.7 37.20 3 20 0.13
Genzyme Corp. GENZ Sell 57.04 15.1 0.8 28 38 19.9 58.84 3 27 0.12
Hospira Inc. HSP Neutral 55.99 9.1 0.7 6 14 16.9 57.29 2 22 0.10
Bard (C.R.) Inc. BCR NC 83.83 8.1 0.7 10 10 15.1 85.00 1 21 0.07
PerkinElmer PKI NC 24.00 2.8 0.9 12 13 17.4 24.00 0 28 0.00
Coventry Health Care CVH Neutral 25.03 3.7 1.1 0 9 11.3 24.80 (1) 37 (0.02)
Bristol-Myers Squibb BMY Neutral 25.98 44.5 0.8 19 12 11.8 25.69 (1) 21 (0.05)
BIOGEN IDEC Inc. BIIB Buy 59.36 16.0 0.7 4 3 12.9 56.38 (5) 28 (0.18)
Millipore Corp. MIL NC 105.52 5.9 0.7 11 12 23.9 97.00 (8) 5 (1.65)
Life Technologies Corp LIFE NC 53.34 9.5 0.8 12 10 15.7 58.83 10 NA
Intuitive Surgical ISRG NC 356.18 13.6 0.7 31 19 45.9 338.67 (5) NA

Industrials
Iron Mountain Inc. IRM NC $26.39 $5.4 1.0 15 % 18 % 23.5x $34.20 30 % 24 % 1.25
Donnelley (R.R.) & Sons RRD NC 20.63 4.2 1.2 (7) 24 13.6 27.00 31 27 1.13
Illinois Tool Works ITW Buy 46.28 23.2 1.1 53 21 16.6 56.36 22 23 0.95
3M Company MMM Buy* 82.18 58.2 0.9 9 12 15.9 94.08 14 20 0.71
Snap-On Inc. SNA NC 43.53 2.5 1.1 12 33 16.4 51.70 19 28 0.68
Republic Services Inc RSG Neutral 28.84 11.0 0.9 12 17 17.2 33.38 16 24 0.67
Dun & Bradstreet Corp DNB NC 73.59 3.8 0.7 3 9 13.6 82.20 12 20 0.59
Fluor Corp. FLR Neutral 46.20 8.3 1.5 (20) 9 15.2 53.78 16 31 0.53
C H Robins Worldwide Inc. CHRW Sell 55.68 9.3 0.9 6 16 24.9 61.81 11 23 0.48
Stericycle Inc. SRCL Buy 55.49 4.7 0.7 15 15 23.1 60.75 9 20 0.47
United Technologies UTX Buy 72.19 67.7 0.9 12 15 15.6 79.29 10 22 0.45
United Parcel Service UPS Buy* 62.88 62.4 0.9 26 22 21.6 68.13 8 20 0.43
Danaher Corp. DHR Buy 77.41 24.9 1.0 15 14 18.9 83.77 8 20 0.40
First Solar Inc. FSLR NC 114.53 9.7 1.6 (17) 21 18.0 134.18 17 44 0.39
Avery Dennison Corp. AVY NC 34.63 3.9 1.3 27 18 13.5 38.25 10 27 0.39
General Electric GE Buy 18.04 192.1 1.3 (3) 20 18.1 19.78 10 27 0.35
FedEx Corporation FDX Neutral 89.80 28.1 1.3 18 22 21.2 98.07 9 26 0.35
Expeditors Int'l EXPD NC 37.58 8.0 0.9 14 17 29.5 40.91 9 26 0.35
ITT Industries, Inc. ITT Neutral 53.63 9.8 1.0 7 11 13.1 57.92 8 23 0.34
CSX Corp. CSX Sell 51.23 20.1 1.4 11 19 16.2 56.17 10 30 0.32
Deere & Co. DE Neutral 59.59 25.2 1.4 16 26 18.4 65.67 10 32 0.32
Honeywell Int'l Inc. HON Neutral 42.91 32.7 1.1 (16) 23 17.7 46.00 7 24 0.30
Grainger (W.W.) Inc. GWW Neutral 108.35 8.1 0.8 14 15 18.1 114.70 6 21 0.28
Pall Corp. PLL NC 38.66 4.5 1.2 16 14 17.3 41.14 6 27 0.24
Dover Corp. DOV Buy 46.93 8.7 1.2 25 27 18.3 49.57 6 24 0.24
Precision Castparts PCP Neutral 119.65 16.8 1.2 6 11 16.4 127.45 7 28 0.23
Roper Industries Inc ROP Buy 58.34 5.3 1.0 11 14 19.3 61.60 6 25 0.23
Cummins Inc. CMI Buy 60.17 12.1 1.5 (2) 62 24.4 64.59 7 36 0.20
Norfolk Southern Corp. NSC Neutral 55.28 20.3 1.1 21 19 16.6 58.00 5 27 0.18
Emerson Electric EMR Neutral 48.89 36.8 1.1 10 18 19.7 50.93 4 23 0.18
Equifax Inc. EFX NC 35.15 4.4 0.8 3 10 14.6 36.33 3 24 0.14
Goodrich Corporation GR Buy* 71.49 8.9 0.9 (1) 14 16.3 74.10 4 26 0.14
Parker-Hannifin PH Neutral 65.37 10.5 1.2 11 33 20.1 67.69 4 26 0.14
Stanley Black & Decker SWK NC 58.44 9.2 1.2 NM 16 19.0 60.40 3 28 0.12
Caterpillar Inc. CAT Neutral 60.22 37.5 1.5 18 54 22.7 62.50 4 32 0.12
General Dynamics GD Buy 74.98 28.9 0.9 6 7 11.4 76.75 2 22 0.11
Raytheon Co. RTN Neutral 56.84 21.8 0.8 1 6 11.4 58.00 2 19 0.11
Textron Inc. TXT Buy 22.53 6.1 1.5 (34) NM 46.0 23.19 3 39 0.08
Rockwell Collins COL Buy 60.69 9.5 0.8 (2) 13 17.0 61.50 1 23 0.06
Eaton Corp. ETN Neutral 74.90 12.4 1.3 56 33 18.8 75.89 1 26 0.05
Lockheed Martin Corp. LMT Sell* 84.86 32.3 0.9 (4) 4 11.4 85.38 1 21 0.03
Ryder System R NC 38.49 2.2 1.5 18 23 20.4 38.83 1 33 0.03
Rockwell Automation, Inc. ROK Neutral 55.23 7.9 1.1 34 21 22.9 55.25 0 29 0.00
Fastnal Co. FAST NC 47.44 7.0 1.1 24 20 31.6 47.40 (0) 27 (0.00)
Jacobs Engineering Group JEC Sell* 44.43 5.5 1.3 (19) 12 18.9 44.32 (0) 31 (0.01)
Southwest Airlines LUV NC 13.03 9.7 1.1 NM 16 19.9 12.78 (2) 31 (0.06)
L-3 Communications Holdings LLL Sell 94.01 10.9 0.9 6 9 11.5 91.92 (2) 21 (0.11)
Robert Half International RHI NC 31.40 4.7 1.1 88 NM 69.8 29.43 (6) 30 (0.21)
Northrop Grumman Corp. NOC Sell 64.90 20.4 0.8 12 15 11.1 61.56 (5) 21 (0.24)
Boeing Company BA Neutral 69.38 50.4 1.1 NM 4 17.2 64.09 (8) 28 (0.27)
Masco Corp. MAS NC 15.53 5.6 1.6 NM 86 38.3 13.89 (11) 36 (0.29)
Cintas Corporation CTAS NC 27.51 4.2 0.9 (4) 12 19.4 25.69 (7) 22 (0.30)
PACCAR Inc. PCAR Neutral 42.42 15.4 1.2 NM NM 51.7 38.44 (9) 29 (0.32)
Flowserve Corp. FLS NC 106.50 5.9 1.4 (8) 25 15.1 123.00 15 NA
Quanta Services Inc. PWR Buy 19.76 4.1 1.5 36 26 21.4 24.53 24 NA
Monster Worldwide MWW Neutral 17.29 2.2 1.6 NM NM NM 17.95 4 NA
Pitney-Bowes PBI Sell 24.48 5.1 0.8 5 4 10.2 25.50 4 NA
Union Pacific UNP Neutral 73.21 36.9 1.2 19 19 17.3 76.32 4 NA
Waste Management Inc. WM Neutral 33.97 16.6 0.8 5 11 16.1 37.67 11 NA

Information Technology
QUALCOMM Inc. QCOM Buy $38.90 $65.0 1.2 16 % 11 % 17.5x $49.77 28 % 27 % 1.05
Western Digital WDC Neutral 39.16 8.8 1.2 42 2 6.4 51.53 32 39 0.82
Applied Materials AMAT Buy 12.66 16.9 1.3 NM 52 16.7 15.94 26 32 0.80
Google Inc. GOOG Buy* 565.56 179.4 0.9 18 14 20.7 671.81 19 24 0.78
Flir Systems Inc FLIR Neutral 26.70 4.1 1.0 4 12 17.6 32.36 21 28 0.75
Corning Inc. GLW Buy 18.88 29.4 1.3 29 9 10.8 23.29 23 31 0.75
Symantec Corp. SYMC Neutral 17.12 13.9 0.9 2 8 11.2 20.50 20 27 0.72
Western Union Co. WU Neutral 16.80 11.6 1.2 2 10 12.7 20.02 19 28 0.69
Visa Inc V Buy 91.51 77.3 0.8 27 19 23.6 106.10 16 24 0.65
Yahoo Inc. YHOO Neutral 16.50 23.1 1.1 12 29 35.1 19.22 16 28 0.59
Microsoft Corp. MSFT Buy 29.63 263.1 0.9 14 13 14.6 33.69 14 24 0.58
Motorola Inc. MOT Neutral 7.27 16.8 1.3 NM 93 32.3 8.77 21 36 0.58
Compuware Corp. CPWR NC 8.71 2.0 1.0 (18) 16 16.8 10.25 18 31 0.58
Hewlett-Packard HPQ Buy 52.23 123.8 0.9 14 10 11.6 59.53 14 24 0.58
McAfee Inc. MFE Neutral 41.75 6.6 0.9 12 11 15.4 47.95 15 26 0.57
International Bus. Machines IBM Neutral 127.76 167.8 0.7 11 10 11.5 141.40 11 19 0.57
Dell Inc. DELL Buy 14.59 28.5 1.2 12 18 12.1 17.26 18 33 0.56
Harris Corp. HRS NC 46.55 6.1 1.1 4 (1) 10.4 53.50 15 28 0.54
Intel Corp. INTC Neutral 22.24 122.8 1.1 NM 9 13.7 25.23 13 26 0.52
Mastercard MA Buy 248.65 32.3 1.1 21 20 18.7 282.93 14 27 0.51
Oracle Corp. ORCL Buy 25.47 127.7 1.0 15 14 14.9 28.68 13 25 0.50
Molex Inc. MOLX Buy 21.17 3.7 1.3 85 26 17.0 24.32 15 30 0.49
Texas Instruments TXN Buy 24.91 31.2 1.0 77 8 12.2 28.08 13 27 0.47
Micron Technology MU Not Rated 10.40 8.8 2.0 NM 10 10.6 12.85 24 50 0.47
Teradyne Inc. TER Buy* 10.92 1.9 1.5 NM 17 11.7 12.96 19 40 0.46
KLA-Tencor Corp. KLAC Buy 29.42 5.0 1.4 NM 59 16.7 33.93 15 34 0.46
Apple Computer AAPL Neutral 224.12 201.9 1.1 25 14 18.8 255.49 14 31 0.45
EMC Corp. EMC Buy* 18.70 38.1 1.0 26 15 16.5 20.95 12 27 0.45
Novellus Systems NVLS Sell 23.77 2.3 1.2 NM 28 14.4 27.12 14 33 0.42
Computer Associates Intl. CA Neutral 23.51 12.3 1.0 10 8 13.1 26.00 11 25 0.42
Agilent Technologies A NC 33.38 11.5 1.0 83 16 18.9 36.86 10 25 0.42
Adobe Systems ADBE Buy 35.49 18.6 1.1 17 15 20.1 39.46 11 28 0.39
Analog Devices ADI Buy 30.43 8.9 1.0 77 10 14.9 33.68 11 28 0.38
Network Appliance NTAP Neutral 33.04 11.2 1.0 21 15 20.3 37.07 12 33 0.37
National Semiconductor NSM Sell 15.06 3.6 1.2 79 31 14.8 16.76 11 30 0.37
Cisco Systems CSCO Neutral 26.26 151.1 0.9 13 14 16.4 28.41 8 23 0.36
Amphenol Corp APH Neutral 44.57 7.6 1.2 22 14 20.3 49.27 11 30 0.35
Xerox Corp. XRX NC 9.90 13.4 1.1 NM 21 12.5 11.00 11 31 0.35
MEMC Electronic Materials WFR NC 14.58 3.3 1.8 NM 51 19.2 16.61 14 44 0.32
LSI Logic LSI Buy 6.34 4.1 1.4 14 44 15.9 7.12 12 40 0.31
Computer Sciences Corp. CSC Neutral 54.38 8.3 0.9 8 7 11.0 57.92 7 22 0.30
QLogic Corp. QLGC Neutral 20.56 2.4 1.1 10 8 17.9 22.03 7 31 0.23
Linear Technology Corp. LLTC Buy 28.80 6.4 1.1 12 15 17.7 30.44 6 26 0.22
Intuit, Inc. INTU Neutral 34.53 10.9 0.7 11 11 16.8 36.20 5 22 0.22
Altera Corp. ALTR Neutral 25.57 7.6 1.1 89 8 16.2 27.10 6 29 0.20
Red Hat Inc RHT Neutral 30.72 5.8 1.1 11 19 43.3 32.56 6 33 0.18
Microchip Technology Inc. MCHP Neutral 28.61 5.3 1.0 32 17 19.2 29.82 4 25 0.17
VeriSign Inc. VRSN Sell* 26.72 5.1 0.8 16 16 18.2 27.85 4 28 0.15
Xilinx, Inc XLNX Neutral 27.31 7.6 1.1 36 16 15.3 28.46 4 29 0.14
Cognizant Tech Solutions CTSH Buy 51.62 15.2 1.0 16 12 25.0 53.59 4 30 0.13
Jabil Circuit JBL NC 17.90 3.8 1.4 62 20 13.3 18.77 5 41 0.12
FIserv Inc. FISV Neutral 51.26 7.9 0.9 9 11 12.7 52.47 2 20 0.12
NVIDIA Corp. NVDA Neutral 18.10 10.0 1.5 NM 20 20.1 18.87 4 42 0.10
Novell Inc. NOVL NC 5.77 2.0 1.0 (12) 3 19.6 5.95 3 31 0.10
eBay Inc. EBAY Neutral 26.98 34.9 1.0 6 9 16.1 27.77 3 32 0.09
Electronic Arts ERTS Coverage S 18.14 5.9 1.2 NM 33 30.2 18.70 3 34 0.09
Broadcom Corporation BRCM Neutral 33.61 16.6 1.2 65 8 16.8 34.37 2 33 0.07
SanDisk Corp. SNDK Neutral 33.29 7.6 1.7 38 6 12.8 33.94 2 47 0.04
BMC Software BMC Neutral 39.38 7.2 0.9 7 5 14.3 39.65 1 24 0.03
Automatic Data Processing Inc. ADP Neutral 44.69 22.6 0.6 3 7 18.4 44.75 0 18 0.01
Advanced Micro Devices AMD Sell* 9.67 6.5 1.9 NM NM NM 9.62 (1) 43 (0.01)
Autodesk, Inc. ADSK Buy* 29.52 6.8 1.2 5 24 26.1 29.28 (1) 30 (0.03)
Total System Services TSS Sell 15.30 3.0 1.0 (14) 8 15.9 15.17 (1) 27 (0.03)
Salesforce.com CRM Neutral 76.74 9.6 1.3 NM 29 60.4 75.44 (2) 35 (0.05)
Tellabs, Inc. TLAB NC 7.70 3.0 1.0 23 13 24.8 7.52 (2) 36 (0.06)
JDS Uniphase Corp JDSU NC 11.46 2.6 1.5 59 31 26.0 10.84 (5) 44 (0.12)
Juniper Networks Inc. JNPR Buy* 30.69 16.1 1.0 27 22 26.8 29.22 (5) 32 (0.15)
Citrix Systems CTXS Neutral 47.43 8.7 1.0 4 11 25.0 44.71 (6) 31 (0.19)
Lexmark Int'l Inc LXK Sell 35.98 2.8 1.1 2 4 11.2 33.05 (8) 38 (0.22)
Akamai Technologies Inc. AKAM Neutral 32.08 5.5 1.1 (22) 10 24.6 29.19 (9) 39 (0.23)
Paychex Inc. PAYX Sell 32.43 11.7 0.7 (0) 8 23.8 30.16 (7) 19 (0.36)
Saic Inc SAI NC 19.27 7.7 0.6 10 11 14.2 22.00 14 NA
Fidelity National Info Services FIS Neutral 23.83 8.9 1.0 20 13 12.3 27.87 17 NA
Teradata Corp TDC NC 28.98 5.0 0.9 8 14 18.1 32.14 11 NA

Materials
Monsanto Co. MON Neutral $72.26 $39.4 1.1 (10)% 30 % 21.2x $91.27 26 % 28 % 0.93
Air Products & Chemicals APD Not Rated 74.55 15.8 1.2 19 13 14.6 89.47 20 25 0.81
Pactiv Corp. PTV Buy 25.24 3.3 1.1 (0) 11 10.7 30.80 22 28 0.80
Ecolab Inc. ECL Neutral 43.60 10.4 0.9 12 13 19.6 50.86 17 21 0.78
Freeport-McMoran Cp & Gld FCX Neutral 81.23 34.9 1.8 30 12 10.7 102.40 26 39 0.67
Alcoa Inc AA Neutral 14.46 14.1 2.1 NM 49 15.5 17.99 24 40 0.60
Praxair, Inc. PX Buy 82.04 25.2 0.9 15 13 17.7 91.74 12 21 0.55
Newmont Mining Corp. (Hldg. Co.) NEM NC 51.23 25.1 1.5 23 17 15.2 58.88 15 35 0.43
Sigma-Aldrich SIAL Neutral 54.90 6.7 0.9 11 11 17.6 60.00 9 22 0.43
Ball Corp. BLL Neutral 54.81 5.2 0.8 7 11 12.6 59.75 9 22 0.42
International Paper IP Buy 27.02 11.7 1.4 65 41 18.6 31.13 15 38 0.40
MeadWestvaco Corporation MWV Neutral 25.87 4.4 1.5 47 15 22.7 29.28 13 33 0.40
FMC Corp. FMC NC 60.53 4.4 1.0 10 14 13.4 67.00 11 29 0.37
Eastman Chemical EMN Buy 63.12 4.6 1.1 23 13 13.9 69.00 9 27 0.34
Dow Chemical DOW Buy* 30.43 34.8 1.6 NM 62 20.7 33.91 11 34 0.33
Owens-Illinois Inc OI Buy 34.99 5.9 1.5 11 18 10.7 38.33 10 34 0.28
Weyerhaeuser Corp. WY Neutral 45.32 9.6 1.4 NM NM NM 48.92 8 29 0.28
Nucor Corp. NUE Buy 45.11 14.2 1.7 NM 98 24.9 49.00 9 33 0.26
AK Steel AKS Neutral 23.11 2.5 2.3 NM 68 15.9 25.67 11 49 0.23
Du Pont (E.I.) DD Neutral 36.49 33.0 1.1 16 14 15.3 38.46 5 24 0.22
Sealed Air Corp. SEE Sell 21.71 3.5 1.0 11 13 13.3 22.90 5 25 0.22
Bemis Company BMS NC 29.98 3.2 0.9 8 18 15.5 31.13 4 24 0.16
Vulcan Materials VMC Neutral 49.65 6.2 1.5 NM NM NM 51.44 4 31 0.11
Cliffs Natural CLF NC 65.43 8.6 2.3 NM 37 14.9 68.90 5 48 0.11
International Flav/Frag IFF NC 45.40 3.6 0.9 12 13 15.0 45.86 1 23 0.04
PPG Industries PPG Neutral 65.90 11.0 1.1 32 15 16.9 66.20 0 23 0.02
United States Steel Corp. X Buy 60.94 8.7 2.4 NM NM NM 60.80 (0) 47 (0.00)
Allegheny Technologies Inc ATI Neutral 52.57 5.2 2.0 NM 95 37.0 48.88 (7) 43 (0.16)
Airgas Inc. ARG Not Rated 64.50 5.3 1.1 7 17 21.8 59.89 (7) 19 (0.38)
Titanium Metals TIE NC 14.60 2.6 2.2 (26) NM NM 13.43 (8) NA
CF Industries Holdings CF Not Rated 94.50 4.6 1.2 (4) 1 14.6 98.43 4 NA
AT & T Inc. T Buy $25.90 $152.8 0.8 4% 6% 11.7x $29.40 14 % 18 % 0.75
American Tower Corporation AMT Buy 44.25 17.8 1.0 40 25 52.7 49.31 11 24 0.48
Verizon Communications VZ Buy 30.15 85.6 0.8 (3) 8 12.9 32.73 9 18 0.47
Sprint Nextel Corp. S Neutral 3.61 10.7 2.1 NM NM NM 4.53 25 55 0.46
MetroPCS Communications PCS Neutral 6.91 2.4 1.7 (15) 43 16.5 7.86 14 49 0.28
Century Telephone CTL Neutral 35.07 10.4 0.7 (12) (1) 10.9 36.86 5 19 0.27
Qwest Communications Int Q Sell 5.00 8.6 1.1 (12) 1 15.6 5.26 5 30 0.17
Frontier Communications FTR Neutral 7.58 2.4 0.8 61 0 11.8 7.67 1 NA
Windstream WIN Not Rated 11.24 4.9 0.8 9 12 13.4 11.63 3 NA

Utilities
AES Corp. AES NC $11.76 $7.9 1.5 (12)% 18 % 9.6x $17.33 47 % 37 % 1.28
Equitable Resources EQT NC 43.62 5.7 1.1 21 42 22.9 55.80 28 28 1.00
Questar Corp. STR Buy 44.18 7.7 1.3 (16) 23 19.1 54.36 23 29 0.80
Sempra Energy SRE Neutral 50.31 12.4 0.8 (1) 4 10.8 58.22 16 20 0.77
NRG Energy NRG Buy* 22.47 5.8 1.3 (44) (39) 10.0 27.69 23 30 0.77
FPL Group FPL NC 48.02 19.8 0.9 8 5 10.6 54.94 14 19 0.76
PG&E Corp. PCG Neutral 43.22 16.0 0.8 6 9 12.9 49.00 13 18 0.75
PPL Corp. PPL NC 29.18 11.0 0.8 70 (2) 8.6 33.14 14 21 0.65
FirstEnergy Corp. FE NC 39.99 12.2 0.9 (4) 12 10.9 45.15 13 21 0.63
CenterPoint Energy CNP NC 14.46 5.6 0.9 9 11 12.2 16.10 11 18 0.62
Exelon Corp. EXC Neutral 45.35 29.9 0.9 (8) 11 12.0 50.63 12 20 0.59
Edison Int'l EIX Buy 34.71 11.3 0.9 2 (2) 10.2 38.66 11 19 0.58
American Electric Power AEP Buy 34.82 16.6 0.8 3 7 11.4 38.25 10 17 0.57
Public Serv. Enterprise Inc. PEG NC 30.96 15.7 0.8 1 (2) 9.8 34.46 11 20 0.56
Entergy Corp. ETR Buy 80.58 15.2 0.8 1 6 12.3 88.93 10 20 0.52
CMS Energy CMS NC 15.75 3.6 0.9 7 7 11.6 17.40 10 22 0.48
Northeast Utilities NU Neutral 27.16 4.8 0.7 2 10 13.9 28.29 4 15 0.28
Constellation Energy Group CEG NC 36.38 7.3 1.0 (2) 5 10.8 38.75 7 25 0.26
Scana Corp SCG Neutral 37.63 4.6 0.7 4 10 12.8 38.80 3 15 0.20
Oneok Inc OKE Buy 46.76 4.9 1.0 3 7 15.6 48.75 4 22 0.20
Wisconsin Energy WEC Neutral 51.19 6.0 0.7 17 8 13.8 52.53 3 17 0.16
Southern Co. SO Neutral 33.45 26.8 0.6 1 6 14.3 33.77 1 15 0.06
Progress Energy, Inc. PGN Neutral 39.82 11.1 0.6 (2) 5 13.2 40.12 1 14 0.05
Duke Energy DUK Sell 16.62 21.7 0.6 4 4 13.0 16.70 0 15 0.03
Allegheny Energy AYE Not Rated 23.67 4.0 1.0 (1) 9 10.1 23.73 0 20 0.01
TECO Energy TE NC 16.17 3.5 0.9 20 6 12.9 16.21 0 20 0.01
Pinnacle West Capital PNW NC 37.91 3.8 0.7 32 1 12.9 37.60 (1) 17 (0.05)
Dominion Resources D NC 40.56 24.2 0.7 (1) 2 12.6 39.79 (2) 17 (0.11)
Consolidated Edison ED Sell 44.51 12.5 0.7 6 6 13.9 43.67 (2) 14 (0.13)
NiSource Inc. NI NC 15.83 4.4 0.9 5 7 14.3 15.25 (4) 20 (0.18)
DTE Energy Co. DTE NC 45.82 7.6 0.8 7 4 13.5 43.69 (5) 18 (0.26)
NICOR Inc. GAS NC 43.42 2.0 0.8 4 0 15.2 39.67 (9) 20 (0.42)
Ameren Corporation AEE Sell* 25.67 6.1 0.9 (16) (1) 11.4 22.67 (12) 19 (0.63)
Pepco Holdings Inc. POM NC 17.28 3.8 0.9 40 10 13.3 16.05 (7) NA
Integrys Energy Group TEG NC 46.85 3.6 0.8 30 9 14.4 43.75 (7) NA
Xcel Energy Inc XEL NC 21.44 9.8 0.7 7 8 13.4 22.09 3 NA

Appendix B: Sector Neutral Baskets using 3 different approaches

Exhibit 21: Constituents of a sector-neutral 50-stock portfolio based on three different metrics, as of March 17, 2010
Highest Sharpe Ratio Highest Expected Return Most Commonly Held
Expected No. of Top 200 Expected No. of Top 200 Expected No. of Top 200
Expected Return / Mutual Funds Expected Return / Mutual Funds Expected Return / Mutual Funds
Ticker Return Implied Vol Holding Stock Ticker Return Implied Vol Holding Stock Ticker Return Implied Vol Holding Stock
Consumer Discretionary
IGT 31 % 0.92 21 IGT 31 % 0.92 21 AMZN 23 % 0.64 71
EXPE 26 0.74 17 EXPE 26 0.74 17 TGT 12 0.50 64
KSS 17 0.69 39 AMZN 23 0.64 71 DIS 3 0.12 59
AMZN 23 0.64 71 GCI 23 0.49 8 MCD 5 0.29 55
MHP 16 0.59 31 APOL 21 0.51 28 HD 3 0.14 53
Consumer Staples
ADM 27 1.06 25 ADM 27 1.06 25 PG 9 0.52 85
WAG 22 0.93 46 WAG 22 0.93 46 WMT 10 0.61 84
KO 14 0.81 57 LO 15 0.62 22 PM 9 0.40 80
MO 12 0.72 37 KO 14 0.81 57 PEP 9 0.51 72
LO 15 0.62 22 AVP 13 0.49 36 CVS 10 0.42 60
WMT 10 0.61 84 DF 13 0.38 11 KO 14 0.81 57
Energy
CHK 44 1.24 21 CHK 44 1.24 21 SLB 27 0.90 81
SWN 36 0.95 47 SWN 36 0.95 47 XOM 17 0.85 80
EP 31 0.92 8 EP 31 0.92 8 OXY 11 0.39 76
SLB 27 0.90 81 HAL 27 0.82 53 CVX 15 0.75 66
XOM 17 0.85 80 RRC 27 0.73 19 COP 9 0.38 55
DVN 26 0.83 38 SLB 27 0.90 81 HAL 27 0.82 53
Financials
CB 17 0.82 34 BAC 24 0.70 92 JPM 20 0.73 115
JPM 20 0.73 115 STT 21 0.65 57 WFC 6 0.22 104
BAC 24 0.70 92 JPM 20 0.73 115 BAC 24 0.70 92
STT 21 0.65 57 MS 20 0.61 67 MS 20 0.61 67
MS 20 0.61 67 CB 17 0.82 34 BK 12 0.45 64
NDAQ 15 0.53 3 NDAQ 15 0.53 3 AXP 10 0.35 59
ALL 13 0.53 23 COF 14 0.37 30 STT 21 0.65 57
Health Care
PFE 28 1.18 87 PFE 28 1.18 87 JNJ 10 0.67 96
ABT 16 0.85 86 THC 26 0.50 5 MRK 13 0.52 90
AMGN 20 0.78 74 AMGN 20 0.78 74 PFE 28 1.18 87
GILD 18 0.70 67 BSX 18 0.40 31 ABT 16 0.85 86
JNJ 10 0.67 96 GILD 18 0.70 67 AMGN 20 0.78 74
BAX 13 0.65 63 UNH 16 0.46 63 GILD 18 0.70 67
Industrials
IRM 30 1.25 11 RRD 31 1.13 14 UTX 10 0.45 72
RRD 31 1.13 14 IRM 30 1.25 11 GE 10 0.35 54
ITW 22 0.95 30 ITW 22 0.95 30 RTN 2 0.11 49
MMM 14 0.71 48 SNA 19 0.68 2 MMM 14 0.71 48
SNA 19 0.68 2 FSLR 17 0.39 21 UPS 8 0.43 46
Information Technology
QCOM 28 1.05 95 WDC 32 0.82 19 MSFT 14 0.58 121
WDC 32 0.82 19 QCOM 28 1.05 95 AAPL 14 0.45 104
AMAT 26 0.80 38 AMAT 26 0.80 38 CSCO 8 0.36 104
GOOG 19 0.78 101 MU 24 0.47 23 HPQ 14 0.58 104
FLIR 21 0.75 9 GLW 23 0.75 50 GOOG 19 0.78 101
GLW 23 0.75 50 FLIR 21 0.75 9 QCOM 28 1.05 95
SYMC 20 0.72 25 MOT 21 0.58 28 INTC 13 0.52 82
WU 19 0.69 35 SYMC 20 0.72 25 IBM 11 0.57 73
V 16 0.65 59 WU 19 0.69 35 ORCL 13 0.50 73
Materials
MON 26 0.93 63 MON 26 0.93 63 MON 26 0.93 63
APD 20 0.81 26 FCX 26 0.67 55 FCX 26 0.67 55
T 14 0.75 63 S 25 0.46 33 T 14 0.75 63
AMT 11 0.48 34 PCS 14 0.28 4 VZ 9 0.47 54
Utilities
AES 47 1.28 28 AES 47 1.28 28 EXC 12 0.59 36
EQT 28 1.00 14 EQT 28 1.00 14 AES 47 1.28 28
Median 20 % 0.76 39 23 % 0.73 30 13 % 0.58 72
S&P 500 Med. 7 0.28 19 7 0.28 19 7 0.28 19

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March 19, 2010 United States: Portfolio Strategy

Using Sharpe Ratios to

Managers may rethink 20% of their holdings

"Sharpe ratio" strategy beats market and peers

Buy high "Sharpe Ratio" stocks <GSTHSHRP>

Use risk-adjusted return for consistent absolute and relative performance

We Recommend Managers SRE APD

0.0 Sell CTAS

Executive summary – Sharpen your portfolio 3

S&P 500 Index Forecasts

S&P 500 EPS estimates 2008A 2009E 2010E 2011E

Information Technology 300 bp 19% 1% (11)bp

Telecom Services (100) 3% (5) 9

Goldman Sachs Global Economics, Commodities and Strategy Research 2

Executive summary – Sharpen your portfolio

We back-tested the returns of a sector-neutral 50 stock portfolio comprised of the

Goldman Sachs Global Economics, Commodities and Strategy Research 3

The current state of affairs – Stock selection based on Target Prices

The commonly-held perception is that mutual funds focus on performance relative to a

Although the characterization of mutual funds as relative return-oriented is accurate on a

Source: Compustat, I/B/E/S, Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 4

Risk Adjusted Return Ratio

We believe portfolio managers should evaluate potential stock investments on a

1.3 with High Risk-Adjusted Returns 90%

Goldman Sachs Global Economics, Commodities and Strategy Research 5

Stock selection – Look for high Sharpe Ratio opportunities

Pick Stocks this Way PFE

Up/(Down)side to Consensus Target Price

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 6

Highest Risk-Adjusted Return Ratio (Top 100 Stocks)

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research

Goldman Sachs Global Economics, Commodities and Strategy Research 7

Back-test supports using risk adjusted metrics in stock selection

We back-tested the performance of a sector-neutral 50 stock portfolio comprised of

Maximum 4,031 bp High Sharpe Ratio Stocks 244

Goldman Sachs Global Economics, Commodities and Strategy Research 8

(Short-Term Basis - 6 mo) (Long-Term Basis)

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 9

Comparing “Sharpe Ratio” with other strategies

Goldman Sachs Global Economics, Commodities and Strategy Research 10

Our recommended strategy: Sharpe Ratio Basket (<GSTHSHRP>)

Consumer Staples Information Technology

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 11

Avg. Daily Volatility (7-Dec-09 to 17-Mar-10)

20 % GSTHSHRP vs. "Sharpe" Strategy GSTHSHRP vs.

14 Realized Risk Adjusted Returns "Sharpe" Strategy

07-Dec-09 to 17-Mar-10 9.9

(2) Lower Sharpe Ratio Higher Sharpe Ratio

Returns vs. Volatility Realized Risk-Adjusted Return Ratio

Total Return Total Return

Goldman Sachs Global Economics, Commodities and Strategy Research 12

Appendix A: S&P 500 ranked by “Sharpe Ratio” within sector

Sector Averages (equal-weighted)

S&P 500 $22.2 1.1 14 % 18 % 17.3x 7% 29 % 0.27

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 13

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.

Goldman Sachs Global Economics, Commodities and Strategy Research 14

Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.