As always, our trading activity during the quarter was driven from the bottom up. The portfolio's sector and region allocations are driven primarily by individual stock considerations but are also influenced, to a lesser degree, by an assessment of macroeconomic and geopolitical considerations. Sector-wise, our allocations to information technology and utilities increased, while financials and consumer staples decreased. Regionally, our exposure to Pacific ex-Japan increased, while our allocation to Latin America decreased.

Information Technology

We have a high conviction in the technology sector, as this is an area where rapid market share shifts mean growth companies are plentiful regardless of the broader macroeconomic environment. We look for innovative companies with the potential to be true market disruptors. The shifts toward greater connectivity, mobility, and use of cloud software applications are powerful long-term trends, and the markets for consumer and enterprise technology products are expanding in all regions. Rapid growth in the use of the internet, particularly in Asia, has yielded many compelling stories with long runways for growth. We also have a sizable exposure to semiconductor stocks that are trading at attractive valuations and should benefit from content growth in the automotive and industrial end markets as well as investment in data centers and artificial intelligence.

• We found a compelling reentry point in semiconductor manufacturer Texas Instruments following the company's issuance of weaker-than-anticipated guidance for the upcoming quarter. We believe this to be a high-quality business with favorable long-term prospects given its potential to benefit from a consolidating industry structure, early-stage product demand cycles, and the possibility of a recovery in global capital expenditures.
• We took advantage of recent share price weakness to increase our position in Samsung Electronics. Ongoing weakness in memory prices and a maturing smartphone market have pressured revenues and profit margins. However, this pain has led Samsung Electronics and other memory suppliers to cut their capital expenditures, which, along with the potential for stepped-up data center spending later this year, should help to set the stage for a recovery cycle. Over the longer term, we expect Samsung Electronics to benefit from a consolidated DRAM industry and a favorable demand outlook, with growth driven by cloud computing, artificial intelligence, video games, streaming video, and other opportunities.

Consumer Discretionary

The consumer discretionary sector has become increasingly challenged as market disruption, driven in part by rapid changes in consumer behavior and e-commerce, has led to a more dramatic demarcation between winners and losers. The "winners" in the sector are becoming increasingly crowded investments, and, thus, it has become more difficult to find opportunities where we feel we have unique insights into improving returns. Given the polarized structure of the sector, our focus is on high-quality names that are on the right side of change and have dominant market positions. We find internet-based media and select retailing companies particularly attractive, but most of our holdings are driven by product-specific stories.

• We established a position in Ross Stores, the second-largest off-price retailer in the U.S. We expect topline growth to be driven by a combination of square-footage expansion, as the company executes on its plan to double its store base, as well as continued solid same-store sales growth, especially as the company is on track to fix issues in its key ladies apparel segment. Furthermore, Ross Stores is a strong cash generator, and we expect the company to continue to return capital to shareholders via dividends and share repurchases.
• We initiated a position in Galaxy Entertainment, one of the largest casino operators in Macau. Its flagship property, Galaxy Macau, is a high-demand destination, and it has multiple projects set to open within the next couple of years. Bolstered by the combination of large-capacity expansion, industry-leading operational performance and consumer demand, and relatively low policy risk, we believe Galaxy is well positioned to benefit from a reacceleration in the Macau gaming industry.
• Despite posting solid numbers so far this year, we sold out of our holding in Chinese consumer home appliance manufacturer Midea. Given concerns over China's weaker macro outlook, we felt there were better opportunities elsewhere.
• Shares of Lojas Renner, the second-largest apparel store chain in Brazil, rallied as the economic environment in the country continued to improve. We exited the position on strength, as valuation became more expensive.

Financials

Recent headwinds, including the slowing pace of interest rate increases and subdued housing demand in the U.S., pose challenges for the sector. Within financials, we like high-quality capital market firms, security exchanges, and select emerging market banks that we think are undervalued and underappreciated.

• We exited the portfolio's position in Itau Unibanco Holding, the largest private sector bank in Brazil, amid a generally more cautious outlook for loan growth this year, given the weaker-than-expected macro environment.
• We scaled back our position in CME Group, the world's largest derivatives exchange by market capitalization and volume, on strength. While we continue to think CME Group can continue to expand its global customer base and product offerings and view it as a major beneficiary from the ongoing electronification of options trading, we chose to moderate our exposure as valuation appears fuller.
• Hong Kong-based AIA Group mainly sells insurance to individuals with exposure across several fast-growing, structurally attractive ASEAN markets, China in particular, where life insurance penetration is very low to date. We initiated a position as we believe the firm offers the potential for durable, resilient growth and can continue to increase earnings and margins over time. We think AIA is a unique asset backed by a strong management team focused on successful execution. The company is well capitalized with a significant and growing excess capital position offering additional optionality.

Health Care

Health care remains a fertile area for growth potential and accelerating technological discovery. Our focus is on companies that are key disrupters and innovators in the field, particularly in the medical technology and biopharma spaces as well as companies where we have particular insight into key drivers of their durable growth.

• We added to our position in medical and industrial product company Danaher. Danaher recently announced that it would buy GE's biopharma business, which sells supplies and equipment for developing and producing biologic drugs. While Danaher is already highly diversified in many growth areas of technology, we believe the acquisition will provide it with a robust innovation pipeline and favorable exposure to specific therapeutic assets and programs.
• We exited our position in life sciences company Illumina on recent strength. The stock has performed well on the back of strong demand for gene sequencing, and we chose to allocate our exposure to more compelling ideas elsewhere.
• Given the continued and growing sentiment overhang on Cigna and other managed care names due to increased political rhetoric around health care reform proposals in the U.S., we chose to exit our position.
• We eliminated our position in Vertex Pharmaceuticals, a commercial-stage biotech company that is developing drugs for cystic fibrosis. With no near-term clinical catalysts to drive the stock higher, we chose to move on from our position.