While the odds of a recession in the U.S. have grown, we want to remain balanced. In an effort to do so during the quarter, we applied a barbell approach to the portfolio by leaning into cyclical stocks that carry attractive valuations and upside potential over a longer time horizon while also continuing to lean into utilities and other defensive sectors in order to provide the portfolio ballast in an uncertain environment.

Real Estate

Within the sector, we typically hold real estate investment trusts (REITs), which own and frequently operate many different types of income-producing real estate properties. We value the attractive dividend yields that REITs tend to provide.

• We added shares of real estate investment trust AvalonBay Communities throughout the period. Given the recent sell-off, we find the company's risk/reward attractive and continue to like the name due to its strong pricing power and well-located multifamily assets.

Health Care

We identified pockets of opportunity in the sector over the period that offered relatively attractive valuations.

• We purchased shares of biopharmaceutical company Bristol-Myers Squibb. We find value in the company's improved exclusivity on select drugs within its pipeline, pending product approvals, and shareholder-friendly capital allocation plans.
• We added to our positions in medical device companies Zimmer Biomet Holdings and Medtronic, as they should both benefit from the resumption of elective procedures in a more normalized, post-pandemic environment.

Financials

The financials sector represents a significant absolute weighting in the portfolio. We tend to prefer defensively positioned names with solid balance sheets and diversified revenue streams that are trading at attractive relative valuations.

• We trimmed our exposure to property and casualty insurers that have been strong contributors in recent periods to lean into other names we felt carried more attractive valuations. We reduced our position in American International Group, and we eliminated MetLife from the portfolio.
• We sold shares of multinational financial services company Charles Schwab to manage our position size. In our view, the stock's valuation suggests that many of the Federal Reserve's potential interest rate hikes have been priced in, but we continue to value Charles Schwab's scale advantage and asset growth.

Consumer Staples

We typically focus our efforts in the consumer staples sector on companies with strong brands that are trading at attractive valuations relative to their peers and/or history. Additionally, our focus has been on analyzing the impact of input cost inflation on the sector. We also like the stable earnings and dividend yields that consumer staples stocks tend to provide.

• We sold shares of chicken, beef, and pork producer and processor Tyson Foods. We continue to appreciate the name but are concerned that increased feed costs will impact margins, particularly in chicken and beef.
• We purchased shares of global retailer Wal-Mart on weakness. In our view, the company has an attractive relative valuation, and we appreciate the defensive nature of the stock and its multiple e-commerce revenue streams, which provide opportunity for value creation.
• We added to consumer packaged goods company Conagra Brands. Despite recent low consumer confidence levels, demand for consumer staples goods remained strong. We appreciate the defensive nature of Conagra Brands and value its growth potential within the frozen foods space.