Investors have had to radically reappraise their outlook for the paths of interest rates and inflation, and the accompanying impact on markets and economies. As we noted earlier in this report, over the last nine months or so by increasing the allocation to more defensive parts of the value universe we have implemented a more balanced profile in the portfolio, and we believe that this is currently appropriate given the current material uncertainties. Valuation spreads in the marketplace remain reasonable and relative valuations of value versus growth are relatively attractive versus history, but both suggest a more subdued value opportunity set than the abundant situation of one-to-two years' ago. There may also be scope for market worries on rates and inflation to subside somewhat.

A changed landscape is possible over the next decade ? materially higher levels of capital expenditure may be required to address the capacity requirements in many industries as a result of both the desired decarbonization of industries and economies as well respond to threats posed to supply chains, specifically in energy but also more broadly as "deglobalization" may well continue. Further, governments may be more willing in engage in higher levels of fiscal spending to meet future economic shocks and fulfil a social agenda, and electorates have seen how effective such spending can (appear to) be within the pandemic. This combination of both higher capex and fiscal spending is likely to be beneficial, in our view, not only to many value-oriented companies but is also likely to put ongoing upwards pressure on inflation and interest rates.

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In the U.S., we continue find opportunities in well-run, quality companies but are mindful of valuations. The health care sector provides ample strong ideas for the long-term. European economies have been more deeply impacted by Russia's invasion of Ukraine and we find more dislocation in these markets. Fiscal stimulus measures continue to be rolled out and monetary policy remains accommodative. Plans are progressing for the Next Generation European Union (EU) Fund, which aims to support EU member countries in their recovery from the impacts of the pandemic. We continue to find opportunities in companies with more cyclical characteristics, which we believe stand to emerge on the other side of the pandemic in positions of strength, as well as defensive names that offer some level of protection in a market downturn.

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We have become incrementally more cautious on the near-term outlook for Japan but remain optimistic. There has been significant fiscal stimulus response to aid the economic recovery. Crucially for investors in the market, corporate governance in Japan has been improving in recent years, with companies becoming more shareholder friendly. We continue to identify stocks with compelling valuations befitting of our value perspective.

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Elsewhere in Asia, we continue to uncover ample compelling opportunities in China's broad market, despite market setbacks in recent months. Concerns over regulatory developments, on-off domestic movement restrictions, and continued strict restrictions on international travel, have all weighed on stock prices in recent months. However, our well-resourced research team finds plenty of opportunities in good companies with compelling valuations.

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We concentrate on the bottom-up view and our strategy continues to invest across the value spectrum in the best ideas from our global research platform. We aim to balance our exposure to economically sensitive and "deep value" names; also holding companies with strong free cash flow generation not yet fully appreciated by the market and with the scope to increase shareholder returns; as well as looking for pockets of controversy where fundamentally sound, well-run businesses face unwarranted investor skepticism. Given our robust research platform and collective experience, we are confident in our ability to find these unique opportunities before their potential for substantial prosperity becomes obvious to other investors.

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