Given the high degree of difficulty we are seeing in navigating today's market, we are focused on maintaining a broadly balanced portfolio and remain largely sector neutral in our positioning. We also want to be cognizant of heightened risk and a diversified portfolio helps us mitigate these risks and avoid high correlation and unintended bets. We still own a blend of structural winners, durable compounders, and higher yielding names that held up well during the March sell-off but lagged on the way back up.

Sector-wise, we are overweight consumer discretionary and financials, though not dramatically so. During the quarter, our allocations to industrials and business services and utilities increased, while our exposure to information technology and materials decreased as we trimmed or eliminated strong winners. From a regional perspective, the continued strong performance of developed equity markets relative to their emerging markets counterparts has led to our EM weighting trending modestly lower. However, in a low growth world, we continue to think investing in the fast growing emerging market countries, such as India, Indonesia, Philippines, Vietnam, and Peru, will be more important than ever.

Industrials and Business Services

The industrial economy is slowly starting to recover. Areas such as the airline industry remained challenged, but we are finding opportunities elsewhere within the sector, and are taking a long-term approach with our investments in the space. We remain focused on high-quality companies that can benefit from multiyear growth trends and increases in global trade and capital spending. We are attracted to less cyclical, durable earnings growers in industries with attractive growth dynamics and are largely avoiding companies with commodity capital expenditures exposure.

• We began a position in global parcel and freight delivery service FedEx. We think FedEx offers a compelling cyclical opportunity due to a number of positive growth drivers that should coalesce over the near term. In particular, the coronavirus has increased demand and tightened capacity, leading to higher pricing for the industry. We also think there are company-specific tailwinds that should help drive accelerating earnings and margin improvement, including better cost synergies and prolonged capacity constraint and pricing strength in air freight, where FedEx has a dominant position.
• We started a position in Chart Industries, which provides equipment and supplies for the industrial gas, energy, and biomedical industries. We think the firm's most compelling segments are in supplying industrial gases like hydrogen as well as cryogenics, and believe there are a number of growth drivers, both cyclical and structural, that could help fuel accelerating earnings over the long term. With a diversified business structure in an industry with high barriers to entry and little competition, we think Chart Industries is well positioned for growth over the long term.

Financials

With leading central banks having cut rates and ramped up quantitative easing measures to help counteract the negative economic impact from the coronavirus, we think we are in a lower rate environment for longer than we had anticipated. While we remain underweight developed market banks due to the challenging rate environment, we have found idiosyncratic ideas in the U.S., Europe, and Canada to add to the portfolio. Our bets within the sector are largely concentrated in capital markets names and emerging market banks. We also have exposure to high-quality insurance companies.

• We moved on from our position in E*TRADE Financial. The stock has performed well in recent months, and the company is set to be acquired by Morgan Stanley. With upside limited, we chose to exit our position.
• We eliminated our position in DNB, Norway's largest retail and commercial bank. The stock spiked on strong earnings results, so we chose to move on to higher conviction names.

Consumer Discretionary

In our view, there are more coronavirus beneficiaries in the consumer discretionary sector than anywhere else, but this has led to a dramatic demarcation between winners and losers. The coronavirus has pulled forward years of e-commerce share gains in the span of a few months and we have an expanded set of names levered to that trend.

• We initiated a position in THG Holdings, participating in the firm's initial public offering (IPO). THG owns The Hut Group, which operates as a multi-website online retailer that provides health, beauty, fashion, lifestyle, and marketplace services. We think THG is an extremely compelling company that is only just beginning to develop a differentiated enterprise e-commerce platform to help brands and retailers build a global online direct-to-consumer footprint.
• We initiated a position in Boohoo, a UK-based online fashion retailer that exclusively sells its own brands. We think Boohoo has an attractive business that offers a sizeable opportunity for further market share gains in Europe and the U.S. over the long term given the accelerated shift to online, an effective marketing and customer acquisition strategy, strong product and supply chain management, and a top-notch management team.

Materials

The coronavirus-induced economic downturn has, not surprisingly, had a negative impact on the materials sector. Historically, the time to increase exposure to materials is during a recession and we added several high-quality names that were out of favor between the first and second quarters. However, a number of those names performed extremely well, so we exited our positions in the third quarter as valuations became more reasonable. Our focus is mainly on high-quality companies that offer particularly attractive valuations and are more highly correlated to staples-like industries and secular growth trends, but we also have exposure to metals and mining companies as well.

• We eliminated our position in Kirkland Lake Gold. The stock has done well and provided solid exposure to real commodities, but we chose to move on after strong performance to reallocate to names with greater upside potential.
• We added a position in Lundin Mining, a Canadian base metals miner mainly focused on copper. As the best conductor of electricity, we think the demand for copper will remain strong for the foreseeable future given the growing electrification of the world driven by technology (electric vehicles, charging stations, power generation, etc.). We think it is beneficial to have exposure to metals with strong demand and an improving cost curve.