Our major overweight sector positions at the end of September were financials and utilities. The largest underweight sector positions included consumer discretionary, communication services, IT, and consumer staples.

Over the course of the third quarter, we continued to identify new opportunities in utilities and real estate, increasing our overall weightings to both sectors. We initiated a position in a parcel delivery company, which resulted in a larger overall exposure to the broad industrials and business services sector. Having entered the quarter with an overweight stance in the health care sector, we moved to underweight as a result of our concerns regarding revenue concentration in one of the portfolio's major holdings. We moved further underweight consumer staples as a result of what we believe are increased headwinds within the tobacco industry. Within the IT sector, we retained our underweight but, within this, made a number of switches to our holdings.

Utilities

Utilities is our second-largest relative overweight position within the portfolio, and over the course of the review period, we continued to find compelling investment opportunities within the space, particularly among U.S.-based companies. For example, we recently initiated a position in�Edison International, the�predominantly transmission and distribution (T&D)-focused utility company, which is based in California. The stock appears undervalued by the market and has an attractive dividend yield. We are of the view that the thesis could improve over time if potential legislation to reduce wildfire risk is passed, as there is a meaningful amount of future capital deployment for grid modernization and wildfire hardening.

Real Estate

In the second quarter of 2019, we closed the portfolio's underweight to real estate, moving to a broadly neutral stance. Continuing this trend, we further raised the portfolio's exposure to this sector over the third quarter of this year as a result of what we believe are evolving opportunities in the space. For example, we built a position in real estate company Prologis, which is a major owner of industrial real estate and operates primarily in Southern California, Chicago, New Jersey, and New York. This blue chip company is compounding earnings and has an excellent balance sheet and a world-class management team. Over the next several years, we believe that rental revenue growth should exceed expectations as supply chains receive an increasing share of corporate budgets.

Health Care

Having reduced the portfolio's exposure to health care last quarter (largely due to concerns around the managed care space), in this most recent quarter we further cut the extent of our positions and are now modestly underweight. This was primarily the result of exiting our holding in Merck. We have concerns over revenue concentration at this large health care company, given the focus on one specific product and limited pipeline opportunities. This is likely to constrain valuation and makes the company more vulnerable to competition.

Consumer Staples

We made the decision to sell out of Philip Morris, the multinational cigarette and tobacco manufacturing company, which sells products in over 180 countries. In our view, the company faces headwinds as it becomes increasingly difficult to offset the decline in volume growth with pricing. As a result of this sale, the portfolio moved further underweight the consumer staples sector.

IT

The portfolio is underweight the IT sector, and over the course of the review period, our overall weighting remained broadly unchanged. However, within the sector, we made a number of switches as new opportunities emerged and relative valuations shifted. For example, we initiated a position in TE Connectivity, funding this in part by reducing the size of our position in Microsoft.

• TE Connectivity designs and manufactures connectivity and sensor products for a variety of industries. The stock has been out of favor on cyclical concerns, but connector sales are expected to grow, and the company is likely to be able to increase market share in the automotive sensor segment.
• Microsoft: We reduced our holding in the world's dominant software provider, primarily due to the valuation beginning to look full. In addition, the company's sizable and secularly challenged Windows client operating systems business likely precludes sustainably faster growth, carries risk, and constrains the multiples the stock merits.

Industrials and Business Services

Within the industrials and business services sector, we made a new addition to the portfolio over the quarter in the form of United Parcel Services (UPS). We purchased shares in this parcel delivery service company as we believe that UPS is making the required changes to address the unprofitability in business-to-consumer (B2C) volumes. In our view, this should arrest the domestic margin decline and provide a free call option on improvement.� We funded this purchase in part through eliminating the portfolio's holding in Verizon Communications (classified within the communication services sector), the largest U.S. wireless operator. In our view, the business has now limited midterm fundamental upside and low free cash flow growth, and there is significant potential for increased competition in the wireless space.