In our view, the trajectory of equity markets heading into 2022 depends on several competing crosscurrents, which creates uncertainty and a wide range of potential outcomes. With elevated multiples across much of the market, we are staying mindful of valuations given the risk for rate hikes and subsequent multiple contraction. Additionally, the pandemic is continuing to serve as an accelerant to many secular growth trends and is causing material changes to consumer behavior; therefore, we continue to focus on how to best position ourselves for those changes in behavior that we believe will remain permanent and avoid those that are likely to be transitory.

Information Technology

Disruptive business models and technologies within the sector continue to present compelling investment opportunities. Secular demand for public cloud computing services continues to be a growth driver. We also continue to favor companies driven by the convergence of communications and computing, including internet software companies, and those that will benefit from broad global tailwinds in digital payments.

• We purchased shares of Amphenol, an industrial supplier of sensors, cables, and connectors to a broad diversity of attractive and growing end markets, including military, telecommunications, and automotive applications. We believe the shares offer a favorable risk/reward trade-off. The company generates significant cash flow, is financially flexible, and is led by a capable management team with a proven track record of solid capital allocation.
• Global Payments is a U.S.-centric merchant acquirer and leading provider of cloud and enterprise applications to help businesses simplify operations and offer customer-friendly payment solutions. We added shares on weakness after a long-awaited recovery in merchant payment volumes outside of the U.S. failed to materialize during the recently ended quarter. Investors are also contending with new competitive threats within the payments space that could disrupt legacy merchant acquirers. Despite the market's harsh reaction, we continue to see potential in Global Payments for intermediate-term earnings growth, driven by stronger revenues from technology products and synergies from acquisitions.

Consumer Discretionary

We are optimistic about stock-specific opportunities within the consumer discretionary sector. We favor businesses benefiting from the secular shift of consumer spending to online products and services. We believe that industries such as physical retail and traditional media are secularly challenged, and we will continue to emphasize companies within the sector that we think are on the right side of change and disruption.

• We partially trimmed our position in Aptiv, a manufacturer of vehicle components like electrical architecture for electric vehicles and sensors for active safety systems, in favor of other compelling opportunities, but we remain constructive on the name.
• We bought shares of Coupang, a leading South Korean e-commerce firm, on weakness as shares slid amid concerns over diminished near-term earnings visibility and constrained fulfillment capacity. We feel the company can leverage its wide moat in logistics technology to offer consumers better merchandise selection, faster delivery, and lower prices than many of its competitors and, in doing so, continue to grow its market share. We also value Coupang's differentiated business strategy that enables it to manage its operating costs better than its competitors. At current prices, we believe the company offers an attractive risk/reward trade-off.

Communication Services

Within the sector, we are focused on companies that are benefiting from the shift of advertising spending to digital and social media channels. We also favor wireless communication services firms with strong company-specific growth prospects and competitive advantages or differentiated business models.

• We added shares of Spotify Technology on weakness. Shares of the largest global audio streaming service slumped following the release of underwhelming monthly average user numbers in their second-quarter earnings report. We believe the company's scale, higher-margin advertising, and artist promotion adjacencies provide it with a viable path to double-digit profit margins.
• We modestly reduced our overweight position in Chinese internet giant Tencent Holdings following a wave of new regulations in the country, including increased scrutiny over video game approval. Despite a fluid regulatory landscape that is still taking shape, we believe Tencent is the best positioned company in Chinese mobile internet, with ample opportunity to further monetize its large, rapidly growing user base. In addition to mobile internet, Tencent possesses broad capabilities, including online payments, online finance, and cloud computing services.