Despite the extraordinary circumstances of the novel coronavirus pandemic and accompanying market volatility, we continued our focus on mainly building the portfolio from the bottom up. In early February as the crisis began to unfold in Europe and the U.S., we raised cash by selling names with balance sheet concerns and also reduced our stock-level exposure to interest rate sensitive names. We are using our resources and investment framework to continue investing in quality companies where we have an insight about improving economic returns in the future and where valuations aren't excessive.

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Sector-wise, our allocations to health care and information technology increased, as the market sell-off created pockets of opportunity in areas that we thought were previously too expensive to invest in. Our exposure to communication services decreased. Regionally, our allocation to North America increased, while exposure to Pacific ex-Japan decreased.

Information Technology

We have high conviction in the technology sector, as this is an area where rapid market share shifts mean growth companies are plentiful regardless of the broader macroeconomic environment. Despite the near-term uncertainty and volatility created by the coronavirus outbreak, the powerful long-run trends that we believe will drive value creation in the technology sector should remain in play. Aftereffects from the virus outbreak could also result in lasting behavioral changes, with more people working remotely and payment methods skewing more digitally. As a result, software and electronic payments are areas of focus for our sector exposure, but we also remain positioned to benefit from increasing artificial intelligence (AI) adoption as well as the growing technology consumption in emerging markets, particularly in Asia. We also have a sizable exposure to semiconductor stocks that we anticipate should benefit from content growth in automotive and industrial end markets as well as investment in data centers and artificial intelligence.

• Lam Research is a high-quality, semiconductor-adjacent name that produces semiconductor manufacturing equipment, and the recent market volatility allowed us to pick up the name at a compelling valuation. We remain bullish on semiconductor names as we think the industry will be relatively insulated from the current crisis environment and should still benefit from powerful trends over the next one to two years due to accelerating DRAM and NAND demand; higher capital intensity in logic, foundry, and memory; and broader 5G rollout.
• We started a position in Taiwan Semiconductor Manufacturing (TSMC), the leading-edge semiconductor chip foundry. We think the semiconductor industry in general will be relatively insulated from adverse effects of the global coronavirus pandemic. TSMC is one of the most well positioned in the industry for strong growth as demand for chips accelerates due to their increased use in AI, automobiles, and the internet of things. The stock pulled back during recent market volatility, making valuation more compelling.
• We eliminated our position in Applied Materials early in March on relative strength. We still think the company is high quality and well positioned to benefit as Moore's Law continues to slow and innovation is driven by materials innovations, but we chose to reallocate funds to names in which we had higher conviction.

Health Care

Health care remains a fertile area for growth potential and accelerating technological discovery. One of our largest bets in the portfolio is in health care equipment and supplies, which are typically defensive in an election year given the uncertainty around regulation. The group also has powerful secular drivers such as the ongoing shifts to biologics and robotic surgery as tailwinds. We have less exposure to the biopharma space due to possible regulatory change in the form of drug pricing reform, with the names we do own having relatively unique platforms. More recently, we started building our exposure to U.S. managed care companies as the tail risk around "Medicare for All" has greatly receded. The managed care industry is also likely to realize some benefit from the coronavirus outbreak that could bleed into 2021 as the industry reprices its business.

• We started positions in U.S. managed care providers Humana and UnitedHeath Group. With sizable Medicare and Medicaid programs and other diversified businesses, we think both companies are well positioned to benefit in a range of scenarios. Furthermore, it has become increasingly unlikely that the early 2020 election rhetoric surrounding a Medicare for All plan will play out, which would be a tailwind for the firms. Both companies' stock prices slid over the quarter, creating attractive entry prices.
• We exited our position in Japanese pharmaceutical firm Chugai Pharmaceutical. The stock held up well during the recent market volatility, and we chose to reallocate funds to names with greater upside potential.

Consumer Discretionary

The consumer discretionary sector has become increasingly challenged as market disruption, driven in part by rapid changes in consumer behavior and e-commerce, has led to a more dramatic demarcation between winners and losers. Given the polarized structure of the sector, our focus is on high-quality names that we believe are on the right side of change and have dominant market positions. We find internet-based media and select retailing companies particularly attractive, but most of our holdings are driven by product-specific stories.

• We initiated a position in TAL Education, one of the largest K-12 after-school tutoring companies in China. We think TAL is a high-quality business with significant free cash flow that stands to gain market share in a highly fragmented business.
• We moved on from our position in athletic footwear and apparel brand Nike. The stock has held up well amid the recent market sell-off, driven by better-than-expected earnings results. While we still like the company, we chose to reallocate funds to names with greater upside potential.

Communication Services

Amid the changing media, entertainment, and communications landscape, certain sector names benefit from strong user engagement and/or subscriber growth. We believe that the lasting behavioral effects from the coronavirus outbreak could accelerate the long-term trend of streaming video services taking share from traditional television and exacerbate the ongoing shift toward digital advertising. We continue to see limited opportunities for strong growth in legacy telecommunications companies, so we remain focused on highly innovative, secular growers within the entertainment and internet services spaces that we believe�are on the right side of change and benefiting from accelerating popularity of digital media.

• We eliminated our position in China's dominant online social platform Tencent Holdings. The stock has held up extremely well in a challenging market environment, so we chose to exit our position and reallocate funds to names with greater upside potential and more compelling valuations.