July 30, 2009
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Gregory Melich
Gregory.Melich@morganstanley.com
+1 (1)212 761 6917
John Glass
Mark Wiltamuth
Michelle L Clark
Chi H. Lee
Jon Tower, CFA
Oliver Wintermantel
US Retail Team
Formidable 5 / Fading 5 Portfolio
Research
US
FormidableFiveAAPDLTRWENWMTYUMFadingFiveANFSONCSHLDSWYUASwapping YUM for DRI. John Glass favors Yum! Brands for its international growth story and US refranchising plans; DRI exitsthe portfolio on weakening of the casual dining sales environment.Performance. The Formidable 5 / Fading 5 is up 3.5% in the last month, down 23.2% year-to-date, and up 46.1% since inception in November 2007. (See page 4for comparative performance.)Our Betas are showing. TheUnderweights carry higher betas than the Overweights (1.35 vs. 0.59), which helps explain the underperformance of the portfolio in the “beta trade”rally in 1H09.Recent Standouts: Overweights Advance Auto Parts andDollar Tree; Underweight Safeway. AAP is up 9% and DLTR is up 7% in the past three months, while SWY declined 11%. The S&P Retail Index is up 5.2% over the period.Cumulative Total Return