During the quarter, we invested in a considerable number of new names. We remain committed to investing in China's future winners and niche market leaders that are currently at the nascent part of their cycle and are overlooked and undiscovered by many investors.

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We made our first foray into the energy sector, where previously we had no exposure, ahead of a potential increase in oil exploration activities. We positioned ourselves in real estate names on the belief that the weak property market, one of China's growth drivers, may stabilize in the second half of the year and eventually recover going forward. We maintain our interest in companies within the EV and renewable energy sectors that are likely secular drivers of growth. China has one of the most comprehensive EV supply chains globally and many international OEMs have their manufacturing headquarters in the country. We sold some stocks with global exposure, including semiconductor names, as we sought to focus on areas that we believe can deliver strong growth despite the specter of a global economic slowdown.

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As a result of our bottom-up stock selection, the portfolio has large overweight positions in industrials and business services, consumer discretionary, and real estate. We believe that the well-run and differentiated businesses we are invested in in these sectors will perform well in an environment where the government is shifting to a pro-growth stance to stabilize the economy.�����

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Energy

The biggest shift in our positioning over the quarter was in energy. For the first time since the portfolio's inception, we established positions in the sector focusing on oil services companies. We believe that China will increase its capital expenditure on oil exploration after years of underinvestment to ensure energy security.

• We bought shares of Yantai Jereh Oilfield Services, a manufacturer of oilfield equipment such as those used in fracturing shale to extract oil and gas.�
• We invested in China Oilfield Services, one of the largest Chinese oil services companies engaged in offshore drilling, well services, marine support, and geophysical services.

Real Estate

In real estate, our preference is to own quality companies which are differentiated and will likely take market share from weaker competitors. Property is one of China's important growth drivers, but it has been weakened by a government clampdown on excessive borrowing from developers last year. Since the start of 2022, cities in China have taken measures to boost demand by mortgage rate cuts, smaller down payments, and subsidies.

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We mostly own property management companies in the sector and during the quarter we shifted some of these positions.

• KE Holding is an integrated an integrated online and offline platform for housing transactions. We bought shares of KE Holdings because we think it will benefit from the potential recovery of the property cycle in the second half of the year. The company delivered consensus-beating first-quarter results. The acquisition of KE Holdings shares also ties into our belief that the market opportunity has changed to aftermarket services from property development given the former's potential for longer-term growth.
• We sold some shares of Country Garden Services, a property management firm, and China Resources Land, the only property developer we own, to fund the purchase of KE Holdings shares.
• We topped up our position in China Resources Mixc Lifestyle Services, a residential and commercial property management company, which was spun off from China Resources Land. Renowned for managing shopping malls, China Resources Mixc has one of the country's largest portfolios of high-end malls.� In our view, the stock is a way to benefit from the consumption upgrade in China.

Consumer Discretionary

We have a significant absolute position in consumer discretionary after finding a number of companies that we think are well placed to gain from powerful long-term themes such as increasing household incomes. The portfolio owns a diverse array of companies in the sector including EV makers, furniture manufacturers, and auto component providers. We believe the sector should benefit as consumption picks up following the easing coronavirus restrictions. �We were able to identify some compelling investment opportunities.

• We bought shares of Yum China Holdings, the license holder of fast-food chain brands in China such as KFC, Pizza Hut, and Taco Bell. We view Yum China as an earnings compounder and a reopening and COVID-off beneficiary. We think the underlying fundamentals of its business are solid despite the disruptions from COVID. We like its strong balance sheet and increasing commitment to return value to shareholders.
• H World, formerly known as Huazhu, is one of the top hotel chain operators and franchisors in China. With the relaxation of COVID-induced mobility curbs in the quarter, we expect it to benefit from the return of domestic travel.
• We bought shares of Pop Mart International, a collectible toy maker that is known for its trademark "blind boxes" which contain unidentified characters, a format that drives repeated sales as customers, mostly affluent teenagers and young adults, seek to secure the rarest collectibles. We like the company's robust intellectual property capabilities, good product offerings, fast-growing membership, and a high repurchase rate.
• Autel Intelligent is a supplier of auto intelligent diagnostic systems. We eliminated our position given the rising costs of chips and shipping, as well as research and development expenses which weighed on the stock.

Industrial and Business Services

We are constructive toward industrials and business services and found opportunities during the quarter. In our view, the sector should be well placed to perform well as China strives to achieve greater self-sufficiency and growth stability. In this space, we own companies that we believe are good business models or those with strong growth tailwinds. More specifically, we believe our holdings will likely benefit from the industrial infrastructure upgrading trend and greater focus on protecting the environment.

• We bought shares of Zhejiang Hangke Tech, a lithium battery back-end equipment supplier because we believe it will likely benefit from margin recovery, driven by the strong capital expenditure cycle ahead in the global lithium battery industry. Major lithium battery manufacturers have announced capacity expansions driven by strong demand from EV and energy storage systems.� Hangke's order backlog acceleration and margin recovery will likely be boosted by the capex cycle of Korean battery makers, which are among its major clients.
• We sold all shares in Ocean's King Lighting Service as heightened competition has negatively affected this leading industrial lighting solution provider.

IT

We sold some of our holdings in IT stocks with global exposure including semiconductor names. Instead, we sought to focus on areas with strong growth despite the challenging external environment.

• We sold out of Win Semiconductors, one of the largest foundries for nonsilicon-based semiconductor components, given its global exposure as its products are mainly sold to the U.S. and Europe.
• We bought shares in BOE Varitronix, a company engaged in the liquid crystal display (LCD) business, which counts the auto sector as its market. Its market share globally is increasing as EVs are using more screens and larger size panels. BOE is one of a few companies with a more advanced LCD manufacturing facility.