We do not make sector "bets," and sector weightings are formed as a residual of our bottom-up investment process. There were no major thematic changes to portfolio positioning in the quarter. We continued to invest in companies that we believe offer compelling long-term investment opportunities, and we trimmed exposure to names that performed strongly, were acquired, or offer limited upside, in our view. The market downturn created buying opportunities, particularly within more growth-oriented names. During the quarter, trading activity spanned the various sectors, including information technology, industrials and business services, consumer discretionary, and health care.

Information Technology

A number of the disruptive companies that are on the right side of change are featured in the sector. We remain sanguine on the sector as a whole. The portfolio has large allocations in the software; electronic equipment, instruments, and components; semiconductors; and IT services industries. We have been able to find many niche software providers that we believe have attractive growth opportunities and barriers to ward off their competition.

• We purchased shares of semiconductor capital equipment company Onto Innovation. The company is a beneficiary of the rising cost and complexity of semiconductor manufacturing and occupies a strong position in process control, where it has been gaining market share from major competitors. We believe that the current valuation offers an attractive risk/reward profile even with the prospect of a recession looming.
• We added a position in experience management company Qualtrics on share price weakness. We believe the capabilities of the company's analytics engine provide a superior user experience and that the category-defining Qualtrics will remain the dominant player in this niche segment given its first-mover advantage and scale.
• We exited Avalara, a company that specializes in cloud-based software that calculates customers' sales tax obligations, and leading mortgage software provider Black Knight following the announcements of their pending acquisitions.
• Weaker demand trends and tepid reaction to the company's recently announced acquisition of Sierra Wireless weighed on shares of fabless semiconductor company Semtech. We believe the acquisition pulls forward execution risk as the company transitions to a cloud services business model and exited the position.

Industrials and Business Services

The portfolio is overweight in the industrials and business services sector compared with the benchmark allocation due in particular to sizable positions in machinery, professional services, and road and rail. The sector tends to be cyclical, with strong surges during economic recovery. We have exposure to cyclical holdings to take advantage of economic recovery, but we also hold positions in more stalwart areas that allow steady and measured returns to provide a more balanced risk exposure.

• IAA provides auction solutions for total loss, damaged, and low-value vehicles and operates in a duopolistic market segment. We believe this to be an attractively valued company in the midst of a turnaround. Improving fundamentals and share gain trends point to long-term performance potential, in our view. We bought shares.
• We increased our holding in Stericycle, the largest provider of regulated medical waste disposal. The company is in the midst of a strategic shift, streamlining its portfolio to prioritize the core high-quality medical waste and paper disposal assets while shoring up the balance sheet.
• FTI Consulting is a professional services firm that is well known for its bankruptcy and economic consulting practices. Higher demand lifted shares, and we trimmed on strength.

Consumer Discretionary

Despite our underweight allocation, we continue to believe the sector is ripe with select names that provide attractive business models and insulated growth opportunities.

• We initiated a position in Steve Madden. The company occupies the top market share position in the U.S. women's fashion footwear market and has the opportunity to expand internationally where it is underpenetrated relative to competitors. We believe the long-term risk/reward potential is favorable at current valuations.
• We increased the portfolio's position in Duolingo, an educational mobile app focused on language learning. The company offers a differentiated product that utilizes gaming mechanics to maintain motivation. We believe the company can access multiple growth levers, including the optimization of subscription pricing and the introduction of new product features. Longer term, the potential for category expansion and enterprise partnership provide additional upside.

Health Care

In health care, we have a sizable allocation to biotechnology, providers and services, and equipment and supplies names. The health care segment has been a sector of controversy over recent years amid reform legislation, attempts at repeal, and the uncertainty regarding its outcomes. We have focused on investments that we feel will benefit from the environment regardless of the end result by sticking to fundamentals and a diversified approach within biotechnology to mitigate risk.

• West Pharmaceutical Services manufactures injectable drug delivery systems and components and provides contract manufacturing services to the pharmaceuticals industry. Shares have languished following lowered full-year guidance for 2022 due to foreign exchange headwinds and a slowdown in COVID-related revenues. We believe the company's risk/reward potential at current valuation is favorable and expect strengthening demand in the company's core business to offset COVID losses longer term. We opportunistically increased our position.
• We eliminated Inari Medical, a medical device company focused on developing products to treat blood clots in the venous system, on valuation considerations.