Even in the face of the acute market sell-off and high volatility that we saw during the quarter, we always focus on building the portfolio from the bottom up. Moving into 2020, we had already reduced the degree of potential risk within the portfolio and were "playing it down the middle of the fairway" to maintain a balanced portfolio and account for the mosaic of risk and return opportunities that we were seeing in the market. While the coronavirus outbreak was a shock to the global financial system and there remains significant uncertainty, we gradually started to add more risk to the portfolio, buying names we want to own on the other side of the pandemic at very cheap prices. We remain largely sector neutral, with most of our recent trades aimed at repositioning the portfolio on the margin into high-quality businesses that are trading at a compelling discount but still have the potential for robust returns over a two- to three-year time horizon.

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Our allocations to health care, information technology, and financials increased, while exposure to consumer discretionary and utilities decreased. Regionally, our allocation to North America increased, while exposure to Pacific ex-Japan decreased. Within emerging markets, we continue to favor what we consider the more fertile and demographically advantaged regions, such as India, Indonesia, the Philippines, Peru, and Vietnam. Our exposure to China is very purposeful in areas such as artificial intelligence and health care, which we think offer long-term growth potential.

Financials

Traditional developed market financials are facing a difficult environment as leading central banks have cut rates and ramped up quantitative easing measures to help counteract the negative economic impact from the coronavirus. Therefore, we retain a focus on commercial banks in fertile emerging market economies. However, we also have exposure to nontraditional financials like security exchanges that have low correlation to the rest of the portfolio and provide support with volatility, private equity firms that benefit from low rates but are still levered to real assets, and online brokerages that don't have the credit risk exposure of banks.

• We initiated a position in Wells Fargo. The company has experienced some high-profile challenges in the past few years and is therefore trading at a discounted valuation compared with peers. With a new CEO and relatively solid fundamentals, we think the market is underestimating Wells Fargo's growth potential.
• We started a position in electronic fixed income trading platform Tradeweb Markets. Fixed income is one of the last groups of securities markets to go electronic, providing a long runway for growth in the industry. We think the firm should benefit from increased adoption of electronic fixed income trading, global bond issuance growth, and greater demand for data and analytics. The company has a history of strong revenue growth and a top-notch management team.

Health Care

While the health care sector has not been immune from the broad market sell-off, the long-term secular tailwinds for the sector remain in place. With political and regulatory noise heating up in the U.S. ahead of the 2020 presidential election, we had already been adjusting the portfolio to limit our exposure to areas that are more highly correlated to such an environment. We have largely focused our health care exposure in life sciences tools and equipment and supplies related to biologics. This crisis should lead a number of emerging markets countries to improve and modernize their health care systems, especially China. We think the crisis could also be a catalyst for developed economies that have been falling behind to revamp their systems.

• Evotec is a core holding in the portfolio, and we took up our position meaningfully during the quarter. Evotec is a large European contract research organization, which provides support to the pharmaceutical, biotechnology, and medical device industries in the form of research services outsourced on a contract basis. The company has been producing solid double-digit earnings growth, which we think will continue, driven by secular tailwinds and deeper customer penetration as end-market businesses choose to outsource these services more often.
• We initiated a position in Thermo Fisher Scientific, a diversified medical diagnostic and biologics company. In our view, Thermo Fisher Scientific is a high-quality, durable growth company with a compelling portfolio of offerings on the forefront of medical advances and research, including the discovery and production of new drugs, vaccines, and disease diagnosis. The stock came down amid widespread volatility, and we took the opportunity to start a position at an attractive valuation.
• We eliminated our position in global medical technology firm Becton, Dickinson and Company. The stock has held up well amid recent volatility, and we chose to reallocate funds to names with greater upside potential.

Information Technology

Advancements in areas like artificial intelligence (AI) and enterprise software are not only affecting technology companies, but also reshaping more traditional industries once viewed as less susceptible to business model disruption. 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 AI adoption as well as the growing technology consumption in emerging markets.

• We initiated a position in Global Payments. We think the firm is a well-managed, high-quality payments business that benefits from secular tailwinds of cash-to-card conversions and a shift to faster-growth, technology-enabled distribution channels. We think Global Payments can drive double-digits earnings growth over the next few years, especially as it unlocks synergies from its recent takeover of Total Systems Services.
• Datadog is a fast-growing, cloud native monitoring company. The firm began by monitoring the performance of physical IT infrastructure in distributed public, hybrid, and private cloud environments and has since branched out to application performance management and other areas that should expand the company's total addressable market. Monitoring services are becoming increasingly important as companies' IT infrastructure becomes more complex, and Datadog's best-in-class software should help it outperform over the long term.

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. Our holdings are tilted toward online and e-commerce.

• We trimmed our position in electric automaker Tesla. The stock held up well compared with peers in an extremely volatile period, so we elected to reallocate a portion of funds to high conviction names with compelling valuations. We continue to believe Tesla is a highly differentiated innovator that will continue to disrupt the automobile industry.
• We exited our position in China's dominant online travel agency Trip.com. The coronavirus outbreak represents a significant headwind to the firm's business as travel remains restricted worldwide and most likely will for some time. Thus, we chose to move on the from the stock and reallocate to names where we have greater conviction.