In the portfolio, we remain focused on the high-growth quality end of the market. Having begun the process in the previous quarter, we continued to reduce exposure to the housing market in the U.S. Despite some better-than-expected data showing the U.S. housing market is showing resilience, we believe the trajectory of U.S. virus infections, uncertainty surrounding future lockdowns, and the unknown timeline of household-targeted stimulus require caution toward the sustainability of housing construction. We also increased our exposure to companies that we expect to benefit from the downturn. We raised exposure to health care and reduced our weighting in materials.

As a result of these shifts, as of the end of June 2020, our largest relative sector overweight positions were in consumer discretionary, health care, IT, and utilities. Our key underweights were financials, real estate, and industrials and business services.

Overall, we maintain a significant overweight position in high-quality growth companies and remain cautious on the prospects of a strong cyclical economic recovery.

Health Care

The most significant recent change to our sector positioning has been an increase in our exposure to health care, following the recent underperformance of the sector as the market rotated into value cyclicals. This created a good opportunity to add to existing positions and significantly increase our sector exposure. As the coronavirus pandemic took hold, we began to rebuild our exposure to the sector. We initiated a position in Ramsay Health Care (RHC) and further increased the extent of our position in biotechnology concern CSL.

• RHC is a global hospital group that operates hospitals and day surgery centres, treatment facilities, and rehabilitation and�psychiatric units. We initiated a position on valuation grounds amid earlier-than-expected resumption of elective procedures in Australia following agreements with the public sector in response to the health�crisis.
• CSL company specialises in plasma. There has been increased demand for its products amid the pandemic. Longer term, the company is, in our view, a very high-quality business that compounds value over time, is exposed to a growing industry that should give it topline growth, has great scale benefits, and has a good management team.

Materials

The portfolio was overweight the materials sector at the start of the review period and had a modest underweight position by the end of the quarter. Following strong outperformance, we took profits on our iron ore names and scaled back our weighting to materials as a result. We reduced the size of our holdings in Rio Tinto, BHP Billiton, and Fortescue Metals Group.

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We shifted some of the proceeds of these sales to other areas within the materials sector. For example, we continued to add to our position in Amcor. This is one of the world's largest packaging companies and focuses on plastics packaging, with key exposures to food, beverage, and medical and personal care. It is a defensive growth compounder that is emerging from a difficult 24 months, with limited downside and potential for significant upside. We think a shift to home consumption and a greater focus on hygiene is likely to be a positive for packaged goods demand.

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Toward the end of the first quarter of 2020, we began reducing our exposure to the housing markets, and in the most recent quarter, we continued this process by eliminating the remainder of our position in James Hardie, the building materials specialist providing fibre cement cladding.

Consumer Discretionary

We remain overweight consumer discretionary, and we further raised the extent of our position over the quarter. We made a number of switches to our positions within the sector, taking advantage of price weakness to buy in to quality names where we felt sentiment had become overly pessimistic as well as seeking out companies that are able to operate successfully in the downturn. At the same time, we have reduced or eliminated positions where we felt fundamentals had deteriorated and/or where valuations had become stretched. For example, we initiated a position in Crown Resorts, continued to build our exposure to IDP Education, and eliminated the holding in A. P. Eagers.

• We believe Crown Resorts is the highest-quality casino operator in Australia from a balance sheet perspective. We took advantage of weakness in the share price to add to Crown and believe its valuation, which is below its historic trading range, will normalise as the economy reopens.
• IDP Education is a market leader in international student placements and English language testing. In the first quarter of 2020, we saw an opportunity to gain exposure to a quality, global leader in this field, and in the most recent quarter, we continued to build the position. We believe the company will likely continue to benefit from strong secular tailwinds once coronavirus concerns dissipate.
• A. P. Eagers is Australia's leading automotive retail group. We eliminated our position in the stock following a strong rally in the share price since the lows the stock hit in March 2020. We see limited near-term sustained recovery as, in our view, the economic implications will have a prolonged impact on�volumes from higher unemployment and tightened credit availability.

Industrials and Business Services

The portfolio retained an overall significant underweight position in industrials and business services. However, we switched some of our holdings, initiating a position in Sydney Airport and funding this through the elimination of Transurban.

• Sydney Airport is a high-quality asset, given its monopoly position, light-handed aeronautical regulatory framework (pricing based on negotiation with airlines, rather than set by a regulator as is the case for many global airports), and unregulated non-aeronautical commercial revenues. While travel remains heavily restricted, we believe valuation provides an opportunity to acquire a quality asset that offers strong upside potential as travel restrictions loosen over time.
• Transurban is an owner, operator, and developer of toll roads. As one of Australia's most indebted companies, we believe an unprecedented shock to traffic will see the company experience balance sheet pressure that ultimately could impact the company's ability to retain near-term dividends.

Financials

Financials remains one of our most significant underweight positions; however, we did raise our exposure over the quarter, initiating QBE Insurance and switching our ANZ exposure to National Australia Bank (NAB).

• We identified what we believe to be a compelling valuation opportunity within the insurance space. We took advantage of share price weakness to add to QBE Insurance, which we believe offers attractive cash generation, improving pricing momentum and efficiency improvements.
• We bought a new position in NAB as we believe economic challenges warrant higher-quality exposure in the banking sector. We view NAB's comparative capital position favourably following its more conservative provisioning earlier in the year.
• We funded the position in NAB through selling out of our position in ANZ. We view the latter as having a higher risk profile versus its peers, given its lower quality underwriting standards. With the expectation that loan losses will increase as the longer-term impact of the virus is realized, we opted for higher quality exposure via NAB.

Consumer Staples

Within consumers staples, we reduced the exposure to Woolworths, moving from an overweight to underweight position in the name. The stock performed well during the lockdown period as people were told to "stay at home" and there was an increased demand for groceries. However, the stock had fulfilled its role as a defensive play in a challenging environment and we saw more compelling opportunities elsewhere.