With the near-term outlook for equities more uncertain, we continue to maintain a broadly balanced portfolio with sector exposures relatively neutral to our core benchmark. We are staying aligned with our global equity research platform in a thoughtful and diversified manner and remain open minded to changing the portfolio as opportunities present themselves. As always, we want to own companies that can produce solid growth over a two- to three-year time horizon, while paying a reasonable price. Given the current momentum-driven nature of the market, we are being diligent about using the opportunities presented to pick up names we like at reasonable valuations.

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Sector-wise, we favor the consumer discretionary and health care sectors as we believe there are strong secular tailwinds in key areas that should benefit over the long term. We find fewer opportunities in areas like energy and consumer staples, where our outlook is more subdued. However, our view on other areas of the commodity complex has shifted, and we added selectively to materials as a result. Regionally, we continue to favor fast-growing emerging market countries that have low debt-to-gross domestic product ratios and attractive demographic growth, such as India, Indonesia, Vietnam, and the Philippines. Despite near-term challenges, we are also finding opportunities in China, with an emphasis on domestic exposure to areas like information technology and health care, where we believe there is a lot of innovation and the government is focused on building vibrant domestic industries. We have used the recent sell-off in the region to concentrate our positions in names that we think are long-term winners.

Financials

Although interest rates are likely to rise at a faster pace than previously expected, we still think rates will remain relatively lower for longer, which is a headwind for traditional developed market banks. We like U.S. capital markets companies that do not have meaningful credit exposure and benefit from a lower interest rate environment and own several emerging market banks we believe are undervalued and underappreciated. We also have exposure to high-quality alternative asset managers and insurance companies.

• We trimmed our position in discount broker Charles Schwab on strength. We continue to like Charles Schwab for its diverse business model compared with other discount brokers, its top-notch management, history of strong capital allocation, and leverage to rising interest rates. We also think the company is benefiting from capturing the synergies from its 2020 acquisition of TD Ameritrade.
• We sold shares of U.S. regional bank Signature Bank. Near-term macroeconomic challenges like higher inflation and the possibility of slowing loan growth have reduced our outlook.

Consumer Discretionary

We favor the consumer discretionary sector, where we are focused on leaders within the global online retail and consumer services ecosystems. COVID-19 has pulled forward years of e-commerce share gains, and we have an expanded a diverse set of names levered to that trend. We continue to think the market is severely underestimating the profound effect the pandemic has had on the consumer landscape. It is now vital for companies to view their businesses through an omnichannel lens, and it is no longer an option for businesses to ignore the need for an online presence.

• We bought shares of U.S. fast casual restaurant chain Chipotle Mexican Grill. We think Chipotle operates an attractive, non-franchise model with strong business economics, and we believe growth should accelerate as staffing returns to pre-COVID-19 levels and the company continues to expand store growth into smaller towns.
• We bought shares of online travel agency Expedia. We think Expedia is a high-quality growth company that is well-positioned to benefit from travel demand normalization as the world continues to learn to live with COVID-19. We also believe the market underappreciates the company's in-house vacation rental business, VRBO, which has been resilient during the pandemic and stands to benefit further from the normalization in travel. Further, Expedia's ongoing overhaul of its cost structure should boost profitability.

Information Technology

Advancements in areas like artificial intelligence (AI) and enterprise software are not only affecting technology companies, but also reshaping more traditional industries once viewed as less susceptible to business model disruption. The powerful long-run trends that we believe will drive value creation in the technology sector remain and, in some cases, have been accelerated by the ongoing pandemic. Aftereffects from the pandemic could also result in lasting behavioral changes with more people working remotely and payment methods skewing more digitally. As a result, software and electronic payments are areas of focus for our sector exposure, but we also remain positioned to benefit from increasing AI adoption as well as the growing technology consumption in emerging markets.

• We sold shares of Global Payments. Given the stock's strong recent run, we thought the company was more fairly valued, so we chose to reallocate funds to names with greater upside potential.
• We sold shares of payroll and human capital management software company Paycom Software. We have higher conviction in Paylocity's ability to drive strong earnings growth over the long term, so we reallocated to Paylocity.

Materials

There are some compelling areas in the materials sector as demand starts to recover post-pandemic and the sector continues to benefit from secular demand for metals that are used to manufacture technological components like batteries. We also like the growing emphasis on sustainable resources within the sector. The Russia-Ukraine crisis has contributed to increased demand and tightening supply in the sector, particularly in agricultural materials, where we added several high-quality names over the quarter. Our focus is mainly on high-quality companies that offer particularly attractive valuations and are more highly correlated to staples-like industries such as ingredients and structural growth trends like containers and packaging. We also see the materials sector as an opportunity to own companies that will have a positive impact on sustainability and the environment.

• We bought shares of Nutrien, a leading global producer of agricultural fertilizer products like potash, nitrogen, and phosphate. Given the supply chain disruption as a result of the ongoing Russia-Ukraine conflict, we think demand for Nutrien's offerings will accelerate as the market looks for new capacity in potash and nitrogen. We also like Nutrien's retail crop inputs business, which we think could provide some stability and downside protection in an environment with heightened commodity price volatility.
• We bought shares of chemical company Albemarle. We think Albemarle has the world's best (lowest-cost and most expandable) lithium assets and believe the company is well positioned to benefit over the long term from accelerating lithium demand as electric vehicles and other technology that relies on lithium batteries grows.