Over the course of 2021 we began to shift the portfolio to a more neutral/balanced stance by increasing our allocation to our defensive holdings. In early 2022, we continued to reduce the cyclical exposure and by the end of the second quarter, the portfolio was broadly balanced between defensive and cyclical names.� �On a sector basis, we added to health care and IT, as well as marginally increasing our energy exposure.� We trimmed our financials holding while also reducing our communication services holdings.� We also made a number of changes within our industrials and business services holdings.

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At the end of June, our largest overweight sector positions were in health care, utilities, and financials while the largest underweight sector positions included IT and consumer discretionary. On a geographic basis, we remain cautious about valuations in the U.S. Although the country represents the largest position in the portfolio on an absolute basis, we retain a significant relative underweight. Despite this, we made a number of adjustments in this large market, eliminating holdings where our investment case no longer held or where valuations had become less compelling as well as adding new positions where we identified compelling reasons for investing.

On a country basis, our largest relative overweight positions by the end of June were in China, the Netherlands, and Japan. Valuations in China are attractive, in our view, but we are mindful of geopolitical and regulatory risk. We raised our exposure over the review period and are hopeful that the regulatory crackdown is largely behind us and many stocks in this market are trading below their cash/book value. In Japan, we are seeing continued signs of improving corporate governance, however macroeconomic and currency concerns weigh on sentiment. We reduced our exposure to the country over the review period. Within emerging markets, we see interesting investment opportunities in India but this is an expensive market.

Financials

We retain our overweight position in financials but decreased the extent of this position over the quarter. Over the past year we have become incrementally more cautious on some of our U.S. positions and have shifted our exposure within this space. In the second quarter we reduced our exposure to U.S. banks as we believe opportunities are more attractive elsewhere in the sector, namely insurers. Our broad-based move out of U.S. banks has now largely played out. We are worried about the credit cycle and believe it is too early to buy back into the sector.

• We eliminated the holding in U.S.-based Huntington Bancshares, a diversified large regional bank as we felt the valuation was beginning to price in higher interest rates. The U.S. bank has one of the more cautious interest rate risk strategies amongst peers.
• We sold out of our position in Equitable Holdings, a large financial services company whose main business is life insurance. Although U.S. insurers as a group still have good pricing power and will likely benefit from higher interest rates, the sector was looking expensive in our view. In addition, we had concerned that Equitable is very sensitive to equity market movements.
• We used part of the proceeds of these sales to purchase a position in Ping An Insurance Group, the largest insurer in China by market capitalization. The company trades at a very low valuation in both absolute terms and on a historical basis following a sharp decline in value of new business (VNB) in 2019.� Our investment thesis is that VNB will gradually accelerate within the next three-to-five years, which should drive a re-rating of the stock.

Health Care

The portfolio has an overweight position in the health care sector, reflecting our preference for defensive sectors currently, and we raised our exposure further. Over the quarter, we identified a new opportunity in the U.S. and in France. Last year, in 2021, as the country's economy reopened and investors focused on cyclical growth stocks, health care stocks were left behind; we believe valuations have now reached very attractive levels and the sector looks cheap. Uncertainty over health care reforms in the U.S by the Biden administration have also weighed on the sector, despite the fact that this space is home to many companies with good growth prospects. Our bias remains to high-quality names.

• We bought a position in Johnson & Johnson, a diversified health care company engaged in the development, manufacturing and sale of pharmaceuticals, medical devices, and consumer health care products. Its share price has de-rated due to the ongoing mix shift towards pharmaceuticals. However, the majority of its key franchises have begun to show significant recoveries from the impact of COVID-19 and we expect this trend to continue.
• Sanofi is France-based diversified multinational health care company, which is engaged in the development, manufacturing and sale of pharmaceuticals, vaccines, and over-the-counter (OTC) health care products. Sentiment towards the name has been held back recently by disappointing trial results from its drug to fight breast cancer, leading investors to question Sanofi's R&D capabilities. We initiated a position in Sanofi as we believe the company has a number of promising drugs in the pipeline, including treatments for hemophilia and multiple sclerosis.
• We largely funded these purchases through our elimination of Roche Holding; we believe the company is fully valued at present and it has a number of drugs going off-patent within the next few years.

IT

IT remains the portfolio's largest relative underweight sector position. However, at a global level the sector sold off very sharply over the quarter, leading us to identify what we believe to be compelling investment opportunities within this space. As a result, our relative weighting to the sector increased.

• We initiated a position in FPT, a Vietnam-based IT services company. The Vietnamese stock market fell sharply in April and May and we felt some valuations had reached attractive levels. We believe the company's long-term growth potential is materially better than what current valuation multiples imply. Country-specific factors support the company, in our view, driving a cost advantage versus global competition and favorable pricing for its customers. Vietnam also hosts an IT-relevant labor pool that is undergoing rapid development which is, in turn, key to the company's growth runway.
• Broadcom is a U.S.-based semiconductor company that makes products for the�wireless and broadband communication industry. We bought a position in the company because the stock offers an attractive free cash flow yield and, in our view, the company's earnings durability and growth are underappreciated by the market.

Japan

On a country basis we reduced our exposure over the quarter although retain a modest overweight. This is partly due to bottom-up stock-specific factors but we are also concerned by the impact of a yen and the slow pace of change at a corporate level.

• We eliminated the holding in Keisei Electric Railway. We had bought the stock on expectations of meaningful capital allocation changes among Japan's railway companies, but this investment thesis has not played out and we cut our position to invest in more compelling opportunities elsewhere.
• We sold out of our position in Panasonic. Our investment case was for it to increase its electric battery (EV) capacity and for this business to become a significant profit contributor. However, this turnaround has not taken place and we believe the pace and magnitude of the EV battery business expansion is unlikely to be as good as we previously believed. We exited our position.