We seek high-quality dividend-paying companies with durable growth prospects, capital allocation discipline, and a strong focus on shareholder returns. This objective continued to guide our investment decisions during the quarter. We leaned into idiosyncratic ideas, favoring companies that we expect to benefit from distinct growth drivers or exposures to structural tailwinds. Amid pockets of indiscriminate sell-offs, we saw attractive entry points to invest in some names that we like. Our attention to valuations also led us to sell shares in areas where we saw reduced room for upside.

Consumer Discretionary

We have a positive bias to the sector. Notwithstanding widespread economic concerns, we think that consumer demand has stayed resilient as credit levels, incomes and other indicators remain in broadly good shape.

• We bought shares of InterContinental Hotels (IHG). The global hotel operator has an asset-light business model, with most of the rooms (or units) in its portfolio falling under franchise or management agreements. We think that the market has underappreciated the potential for IHG's net unit growth to accelerate, which is a key stock driver from our perspective. We anticipate strong free cash flow generation and earnings growth for the company. We also believe it may restart share buybacks after reinstating its dividend recently.
• Magna International is one of the world's largest auto parts suppliers and we purchased its shares. In our view, the stock has historically tracked the auto production cycle, and we expect production to increase on the back of pent-up demand and improved semiconductor chip supply. In the longer term, we see Magna tapping its strong manufacturing capabilities to develop comprehensive electric vehicle offerings. We are positive on the company's earnings growth potential.

Financials

The sector remains a sizeable part of the portfolio, even after we reduced our exposure during the quarter. Our key financials holdings include insurers, financial services companies, and banks that demonstrate high-quality characteristics by our assessment.

• We sold shares of Al Rajhi Bank in Saudi Arabia following the stock's recent rally. We saw the bank deliver much of the growth we had anticipated, and we think there is limited room for its valuation to climb further. We are also cautious about the potential for higher funding costs and increased competition in mortgages to compress the bank's net interest margin.
• CME Group is a global derivatives marketplace. We consider trading volumes to be a key driver for the stock, and we expect volume growth to taper off following a spike driven by increased market volatility. We turned more cautious about CME's risk-and-reward profile in the near term and reduced our holding.

Communication Services

We are selective in a sector where capital-intensive telecommunication companies with limited growth opportunities tend to dominate. We seek telecom companies that appear best-positioned in their industry, and we also favor music companies that display room for growth.

• We sold shares of Comcast, a global media company and a major U.S. cable operator. We are mindful of secular headwinds in the pay-television industry, and we see increased uncertainty around the value of investments that Comcast may undertake in this area.