The start of the new year is likely to bring with it a heightened level of uncertainty, as the market learns more of President-elect Trump's proposals and continues to digest the possibility of interest rates increasing at a faster rate. We continue to implement a bottom-up approach to stock selection, seeking companies whose innovative use of technology allows them to capture market share from competitors. We also value companies that have positioned themselves to benefit from broader trends within the technology space. Finally, we place a premium on those companies that benefit from solid fundamentals and strong management teams.

Semiconductors

The semiconductor industry stands as one of our largest positions within the portfolio. Several companies in this industry are appealing because they serve a range of end markets. This characteristic helps add a level of diversification to their mix of revenues. The industry underwent heavy consolidation during the past several years, and there remains room, albeit limited, for this to continue. Our holdings in semiconductors focus on companies that are on the cutting edge of new and evolving technologies that have the potential to play key roles in long-term trends.

• We believe that ASML Holding, one of our largest positions within the semiconductor industry, is well on its way to commercializing its extreme ultraviolet lithography technology. In October, the company reported third-quarter results that beat guidance and expectations as well as issued strong fourth-quarter guidance. The following month, the company announced that it purchased a stake in ZEISS, a German lens manufacturer, to help it create the next generation of extreme ultraviolet lithography systems. Shortly thereafter, ASML Holding finalized its acquisition of Hermes Microvision, Inc. We are encouraged by both deals; the former will help ASML Holding solidify its long-term position as an industry leader, while the latter will more broadly assist its customers with manufacturing challenges.
• We initiated a position in Broadcom, a designer of analog semiconductor devices that focuses on proprietary high-end wireless filters used to integrate and filter signals as the smartphone market progresses toward 4G LTE. Broadcom has demonstrated strong growth within its smartphone-driven filter business, and recent acquisitions should provide further earnings growth through cost-cutting.
• Shares of NXP Semiconductors rallied near the end of September after Qualcomm announced its plans to acquire NXP Semiconductors. As a result, we trimmed our position on strength throughout the first two months of the quarter, and we then eliminated our position in December.

Media

Within media, we are most interested in companies with long-term growth potential. Our non-benchmark position in Netflix is a solid example of this. We value the company's global ambitions and are encouraged by the steps the company has taken to continue to invest in and innovate its services.

• We believe that Netflix can gain subscribers through both its original content and recent deal to be the exclusive U.S. pay TV home outlet for new Disney movies. Our belief in the company's long-term growth potential was reaffirmed during the period. Shares surged in mid-October after Netflix reported third-quarter earnings that surprised many investors due to the increase in domestic and international subscribers. Shares were pressured in the weeks following the U.S. presidential election because Netflix is one of the few companies that benefits from more regulation, specifically with regard to Internet service providers that own the networks to access Netflix's customers. We view this recent downward momentum as a transitory headwind and remain encouraged by the company's ambitious global expansion. While we trimmed our position over the course of the quarter, it continues to stand as a top holding.
• Although Liberty Global, one of Europe's largest cable operators, posted third-quarter results in early November that were largely in line, shares were pressured mid-month due to the market volatility following the U.S. presidential election. This persisted into December. We have been trimming our position over the past several months.

Miscellaneous

Our non-benchmark position in Tesla Motors was notable during the period, and the company stood as a leading contributor to relative performance. Tesla Motors was able to successfully navigate negative investor sentiment that had weighed on it since the announcement of its proposed acquisition of Solar City. Furthermore, concerns about how Tesla Motors would fair under a Trump administration were lifted when Elon Musk was added to the president-elect's Strategic and Policy Forum. We added to our position during the period.

• Tesla Motors is a strong earnings growth story as we expect the company to continue innovating with better and more competitive electric vehicles. We point to the company's high level of differentiated innovation as evidence of its long-term potential. In late October, the company reported very solid third-quarter results which highlighted better production execution and expense control. However, during the period, investors were most interested in Musk's plans to acquire SolarCity, a leading provider of clean energy services. News of the proposed acquisition was released in June. Investors reacted unfavorably to the idea, and the market approached the stock with a level of uncertainty for several months. Tesla's shareholders eventually approved its proposed acquisition of SolarCity in November. We are optimistic that Musk will execute on his long-term vision for the combined company and create shareholder value.