We remain comfortable with our positioning in high-quality companies that can reliably compound earnings regardless of the economic cycle and policy changes. We favor cash-generative businesses that tend to be consumer focused and run by experienced management teams.

The durability of Asian domestic consumption remains a key theme for the portfolio. We continue to focus on the long-term fundamentals that could withstand the changing regulatory environment. During the quarter, we identified compelling investment opportunities in the financial sector and found entry points in consumer staples, real estate, and consumer discretionary. Within consumer staples and real estate, we took advantage of share price weakness to switch to those with better risk and reward profiles.

In China, where we have a significant allocation in absolute terms, we invested in names that will benefit from a stabilizing economy and the post-COVID recovery in consumption. Having said that, we do not have strong country views as we build the portfolio from the bottom up and strive to own the best businesses across the region that meet our investment framework.

Financials

We have a strong conviction in the financial sector. We sought life insurers whose growth runway is long and which we expect to compound at a healthy pace even beyond the cyclical recovery of the economy. We preferred to own banks with high-quality lending franchises that are potential market share gainers. We also owned shares of lenders that are most levered to rising interest rates.

• We purchased shares of HDFC Life Insurance, a high-quality insurer that is gaining share in an under-penetrated market due to strong execution and solid branding. The insurer will likely benefit from the secular shift towards higher margin, protection-based products. HDFC Life Insurance has one of the best track records among private insurers with a balanced product mix and distribution capability.

• AIA Group is life insurer with a unique footprint in southeast Asia and a growing China business. We bought shares of AIA, which delivered strong fourth-quarter operating performance, a return of cashflows to pre-pandemic levels, and a share buyback. We continue to like AIA for its strong management team and sound capital position. With Southeast Asian economies returning to normality, we see a good set-up for the year for AIA, given its high-quality financial advisor network, supported by a strong technology and analytics platform.

• We bought shares in Axis Bank, an Indian lender that has a strong balance sheet and capital position. We believe it is well positioned for market share gains.

Consumer Staples

In this sector, we like quality companies in cash-generative businesses such as convenience store operators. We also own consumer names with strong cashflow generation capabilities and shareholder return discipline and those likely to benefit from the post-COVID normalization of business. We invested in China's pharmacy's retail sector that offers exposure to the rising health care spending in the country with lower policy risks. During the quarter, we took advantage of share price weakness to make changes in our holdings in the sector.

• We bought Tsingtao Brewery shares, which fell sharply in the quarter, reflecting concerns about the coronavirus outbreak restrictions and rising commodity prices, in our view. Tsingtao, one of the largest brewers in China, reported 2021 results that showed strong average selling price gains and margin expansion. We believe that the market underappreciates the brewer's premium portfolio and the product momentum driven by increasing interest in domestic brands. We think that Tsingtao will continue to benefit from the premiumization trend and pricing discipline.

• We sold shares in Budweiser Brewing, one of the largest pan-Asian brewers, following gains and used the proceeds to purchase Tsingtao stocks.

Real Estate

We identified opportunities in the real estate sector, mostly Chinese developers which are state-owned developers and likely to gain market share as the sector consolidates. We sought property management companies, which we view as steady earnings compounders backed by strong parent developers. We believe that the government will provide incremental support to stabilize the property market in China.

• We acquired shares of Country Garden Services, a high-quality property management firm, that executes well and has grown its market share in the last year. We think investors overlooked the fact that its growth trajectory does not hinge on the primary housing market.

• Greentown Service is a property management which relies heavily on third-party business and, unlike Country Garden Services, is not backed by a parent developer. We think that the third-party business is shrinking, which led us to sell the Greentown shares that we owned.

• We trimmed shares of Hysan Development, a Hong Kong-listed commercial landlord, to finance other purchases.

Consumer Discretionary

Within the consumer discretionary sector, our preference is for cash-generative fast-food restaurants, e-commerce companies that include dominant market players and their rivals with new business models, and auto dealers benefiting from the potential recovery and increasing aftermarket growth. We are constructive about the consumer discretionary sector but in the quarter, we made some changes in the portfolio.

• We sold shares of Gree Electric, an air conditioner maker, due to our lower conviction that it can turn around the business. We used the proceeds to invest in names with better risk and reward profile.

• Yum China is the operator of the KFC and Pizza Hut chains in China which we like for its improving fundamentals despite the pandemic disruption and the solid track record of its management team. We bought shares in the company due to its more attractive valuation. Concerns about the U.S. delisting of Chinese companies weighed on Yum China even though it has a secondary listing in Hong Kong.

Information Technology (IT)

A large concentration of our IT sector holdings is in semiconductor names, which have benefited from the surge in pandemic-related demand for technology devices and gadgets amid a shortage in chipmaking components. During the quarter, we made some adjustments in the portfolio.

• We purchased shares in Sunny Optical Technology, a manufacturer of smartphone camera lenses, taking advantage of its stock price weakness following below-consensus results for the second half of 2021 brought about by a sharp drop in smartphone lens revenues due to an intense price war. We think Sunny's earnings growth may improve from the second half of 2022, boosted by its automotive lens business on expectations of a sharp pickup in assisted/autonomous driving penetration. We believe that it is also well set up for margin recovery in its smartphone lens business.

Communication Services

We found further opportunities in communication services. The sector has benefited from the long-term trends that were expedited by the pandemic such as e-commerce and video streaming. Within the new economy segment, while e-commerce and internet companies face regulatory risks, we invested in those with differentiated business models that could potentially offer better upside.

• We acquired American depository receipts of Sea Limited, an internet platform company operating in Southeast Asia, taking advantage of its undemanding valuation. Its shares reflected weak revenue guidance for its gaming business this year despite better-than-expected revenue estimates for its e-commerce and fintech businesses. We still view Sea as well positioned to gain market share in the online games market in Southeast Asia and likely to expand its total addressable market into other emerging countries. Shopee, its e-commerce platform, has a long runway for growth, in our view, as it gains share in Southeast Asia while venturing into other low-penetration markets.