We have maintained our disciplined approach and remain focused where we believe we have an investment edge, specifically in the multiyear structural commodity call. We will follow what the data tell us, and it shows that oil productivity is still improving and has further room to run, pressuring the cost curve and leaving a challenged long-term outlook for energy stocks. As such, we remain meaningfully underweight energy to reflect our longer-term bearish view. The oil cost curve is influential in the cost curve of many other commodities and informs our bearish views on metals and mining, which is another significant underweight. Additionally, we continue to favor beneficiaries of commodity deflation?such as utilities, packaging, and specialty chemicals?and expect to retain a meaningful allocation to paper and forest products, where we see cyclical and secular tailwinds converging as the cost curve steepens to the advantage of low-cost producers while the growing emphasis on environmental, social, and governance (ESG) factors adds additional support to the industry.�

Given the numerous complex and uncertain cross currents in the commodity complex, we have found it important to remain true to our process. Our goal to is to deliver commodity exposure in a better risk-adjusted manner over time by investing in the right cost curves, companies, and valuations. Within the context of a longer-term view, we are navigating the highly uncertain nearer-term magnitude and duration of exogenous risks?which include weather-related issues, geopolitical events, and the lingering pandemic impact on supply chains?by assessing relative risk/reward and relative durability of the impact on various commodities while remaining consistent with our process. We have, therefore, been increasing our exposure to global gas/liquefied natural gas (LNG) and fertilizer/agriculture given our views outlined above.

Integrated Oil and Gas

Although current geopolitical events may continue to inflate oil prices in the near term, we believe the transition to renewable energy is a long-term headwind for entrenched players in this segment. Therefore, we choose to focus our exposure on high-quality companies with prudent management teams that make good capital allocation decisions.

• One of our largest sells was in Galp Energia, which encountered a series of production challenges. These proceeds helped to fund our top purchase for the quarter in Shell, one of the largest global integrated oil companies. The war in Ukraine has resulted in an acute natural gas risk given Europe's dependence on Russian supply, and Shell has the largest exposure to LNG among the major integrated oil companies. We feel Shell will be able to benefit from a significant structural change in global gas logistics that will likely take time to take shape, keeping gas prices high in the process. We also believe that recent management changes could unlock value and lead to a higher multiple.
• We trimmed our position in France-based TotalEnergies to manage position size, though it remains our largest holding within the segment. Despite near-term weakness due to exposure to Russia, we like the company's high-quality management team, capital discipline, strong balance sheet, and credible plan to deliver solid production growth in the coming years. These qualities and an attractive dividend yield make TotalEnergies appealing in an environment where we expect the cost curve for oil to remain under pressure going forward.

Oil and Gas Equipment and Services

The Russia-Ukraine conflict has exposed the energy security risks accompanying Europe's dependence on Russian energy. The full impact, magnitude, and duration of the war remains unknown; however, we believe the conflict has heightened a newfound global focus on energy security, particularly in Europe.

• We initiated a position in Baker Hughes, one of the world's largest oil field services companies. The quality of the business has significantly improved in recent years. There is no easy solution for the gas/LNG supply needs in Europe, which means prices could remain elevated as the region gradually pivots away from Russian gas. With this backdrop, we believe Baker Hughes' differentiated exposure to LNG and infrastructure capabilities could drive margin upside with increased activity and tightening capacity.

Fertilizers and Agricultural Chemicals

Some of our largest purchases during the period were in this industry. Rising input costs and supply shortages have driven up the prices of fertilizers and other agricultural inputs. Concerns around high natural gas prices, an ingredient in fertilizer production, as well as shortages of potash and nitrogen have resulted in higher input costs that producers in this industry will pass on to consumers. Limited availability and elevated prices for fertilizers may also drive demand for agricultural chemicals as farmers seek to protect crop yield.

• We initiated a position in Chile-based Sociedad Quimica, an integrated producer of lithium, iodine, and potassium-nitrate fertilizers. The company commands a high market share in each of the relatively consolidated businesses in which it operates. In addition to the potential margin uplift in its fertilizer business, we believe it could also benefit long term from the lithium upcycle driven by a growing supply-demand imbalance in electric vehicles amid increased adoption.
• We added to Nutrien, a crop nutrient company that is the top global potash producer and agricultural retailer as well as a major nitrogen producer. Uncertainty around potash supply from Russia and Belarus has created expansion potential and pushed up incentive curves, which could benefit Nutrien's earnings. The company's retail segment distributes crop nutrients, crop protection products, seed, and merchandise, and could also help to provide some downside stability.
• We also added to CF Industries, the largest low-cost nitrogen fertilizer producer in North America, as it could benefit in the current industry backdrop. We are attracted to CF Industries' risk/reward outlook and like its consistent, strong free cash flow generation, as well as the steps it has taken to strengthen its balance sheet.

Paper and Forest Products

We took advantage of attractive valuations to upgrade our exposure in our compelling investment ideas. A substantial increase in input costs, driven largely by supply bottlenecks as well as shortages in building materials, have proved challenging for the industry. However, demand continues to grow for paper packaging. We also continue to see the cost curve secularly steepening, as incremental supply from paper mill conversions and new pulp capacity required to meet incremental demand is getting increasingly more complex and therefore more capital intensive. This benefits the lower cost producers, driving an improved pricing and margin outlook. The increasing penetration of e-commerce and the trend toward replacing pollutive materials with wood-based alternatives further continues to gain traction in packaging and should create long-term demand tailwinds and improved pricing for the segment.

• We added to UPM-Kymmene, a former graphic paper company based in Finland that is in the process of pivoting its business toward growing areas of the forest/paper supply chain, including pulp and bioproducts from waste wood, such as biochemicals and biofuels. The company has a strong balance sheet and is at the tail end of a major investment phase, with strong organic growth expected upon the completion of a large pulp mill. UPM's differentiated wood-based biofuels and bioplastics technology also offer significant carbon dioxide reduction relative to fossil-based alternatives.
• We eliminated our position in Stora Enso?an integrated paper, board, and wood products producer?and took advantage of share price weakness to add to Svenska Cellulosa, the largest private forest owner in Europe. We see a reasonable path to generating significant value from its vast forest holdings as industrial capacity expansion in the region has positively influenced wood prices, which in turn drives forest land values. Svenska's wood products division is structurally more profitable than those of its peers. Wood-based products are expected to replace less sustainable alternatives as the energy transition gains traction and carbon capture emerges as part of the solution for the global climate crisis.

Diversified Metals and Mining

We remain underweight the industry and defensively positioned with the names in the portfolio, focusing on companies with solid balance sheets and sound records of capital allocation. In our view, a global oversupply of many base metals could be a headwind through much of the secular bear market in commodities. While we have a bearish view on diversified metals and mining, we have a favorable medium- to long-term outlook for copper prices, despite recent headwinds, because of the potential for demand to expand as the adoption of electric vehicles grows.

• Near-term price weakness created an opportunity to add to our top holdings in this segment. We increased our stake in BHP, one of the largest diversified miners. BHP is a well-run company, and we like management's efforts to simplify the business. The company exited its oil and remaining thermal coal assets this year, which has improved its ESG profile. While exposure to iron ore is a secular risk, the industry is consolidated, and BHP could benefit amid limited supply. The company is also supported by potential upside from its copper business and shift to potash, an important growth area
• We eliminated the portfolio's position in copper producer Antofagasta, which is facing deteriorating fundamentals amid another cycle of elevated capital spending, in favor of other investment opportunities.

Metal and Glass Containers

While a modest portfolio allocation, we think metal and glass packaging will continue to take market share from plastic because of superior recyclability. The industry has experienced significant headwinds recently, including cost inflation, fading tailwinds from the stay-at-home bump in beverage consumption, slowing growth expectations, and concerns of oversupply from a new entrant. However, we expect these challenges to abate in the near term as growth expectations recalibrate and the focus on sustainability sharpens.

• We opportunistically increased the portfolio's stake in Ball Corporation, a leading manufacturer of aluminum packaging for beverages, foods, and household products. Ball is the highest-quality name in beverage cans with a consistent capital allocation framework. The company operates in a consolidated industry that includes multiyear supply contracts to fillers of carbonated soft drinks, beer, energy drinks, and other beverages, as well as a business structure that allows for cost pass-through to consumers.