Model Portfolio Outperforms RTS Index By 5. 4% On Average. Since the latest revision on 6 December 2004, our model portfolio has outperformed the RTS Index by an average of 5.4%, adding half a percentage point.

Favoring More Defensive Oils, As Well As Telecoms. We believe the beginning of the year could be volatile, as the on-going processes of political centralization, economic reforms and the state increasing grip on the economy could cause unwanted wave in the short term (Specifically, Gazprom comes to mind as a prime suspect for ‘shocking’ news). Therefore, we prefer to be hedged with lower-beta stocks, such as Transneft and LUKOIL. The telecoms sector is our top pick for the year – both for providing exposure to the growing domestic economy and in view of the approaching privatization of Svyazinvest. Meanwhile, our consumer goods picks have performed very well and have limited fundamental upside. In addition, as we are becoming more positive on metal prices in the mid-term, we have increased weight exposure to metal stocks in our model portfolio.