Our bearish long-term outlook for oil prices and belief that we are in the middle of a secular downcycle for commodities have not changed. Accordingly, we favor defensive industries, such as electric utilities, and areas of the natural resources universe that tend to benefit from lower commodity prices. We continued to upgrade the portfolio by exiting lower-conviction ideas while adding to high-quality names that look attractive now and that we'd like to own on the other side of the economic cycle. We increased the portfolio's exposure to paper and forest products, an industry where we believe production cost curves are rising and the supply/demand outlook appears favorable. Depending on the duration of the coronavirus outbreak, we see the potential for a sharp rebound in oil prices over the near term as demand normalizes, and we have been selective in how we position for this trade. As always, we remain conscious of valuation, industry fundamentals, and longer-term risk/reward propositions for the individual companies in which we invest.

Paper and Forest Products

We increased the portfolio's allocation to this industry to reflect our increasing conviction in the potential for cost curves to rise throughout the value chain, supporting timber and containerboard prices and improving profit margins in the industry.

• We initiated positions in Stora Enso and added to Svenska Cellulosa. These European producers of forest products could see significant upside to their midcycle earnings. We also see a reasonable path to the market assigning significant value to forest holdings as wood-based products replace less sustainable alternatives and as carbon-capture emerges as part of the solution for the global climate crisis.

Integrated Oil and Gas

We refined the portfolio's positioning in integrated oil and gas given the shrinking universe of viable options and structural headwinds from the shift to renewable energy.

• We appreciate France-based Total's high-quality management team, capital discipline, strong balance sheet, and credible plan to deliver solid production growth in the coming years. These qualities and an attractive dividend yield make Total appealing in an environment where we expect the cost curve for oil to remain under pressure. However, we trimmed Total, which remained the portfolio's largest holding, to manage position size.
• We exited our position in Canada-based Suncor Energy, as the company recently announced potential efforts to sacrifice its upstream production for more ESG-friendly downstream. This shift is a breach to our investment thesis and is a distraction to the management team, in our view, that could dilute returns.

Metal and Glass Containers

We increased the portfolio's allocation to this defensive industry. Our holdings emphasize investment ideas that we believe offer the most compelling risk/reward profiles.

• We initiated a position in Crown Holdings, one of the largest beverage can manufacturers globally. The company benefits from surging demand from beverage and food manufacturers for aluminum cans, as well as a growing total addressable market given the shift from plastic to more sustainable products including aluminum.
• We trimmed the portfolio's stake in Ball Corporation, a leading manufacturer of aluminum packaging, on strength. However, we continue to maintain a meaningful allocation in Ball, which should benefit as aluminum packaging replaces less sustainable options and cans take market share in cocktails and wines. We expect that Ball can grow its organic topline given competitive pricing in specialty cans and supportive supply/demand dynamics, as well as new beverage categories.

Precious Metals and Mining

The portfolio remained underweight precious metals and minerals, an industry where we prefer small- to mid-cap producers pursuing mining projects that are lower on the cost curve and should drive significant production and cash flow growth upon completion. In our view, gold miners with these high-quality expansion opportunities, as well as credible management teams and solid balance sheets, have the potential to create significant value for shareholders even if commodity prices do not cooperate.

• We sold some shares of Canadian miner Kirkland Lake Gold. Unlike other North American gold miners, Kirkland Lake has been highly successful because of its ability to buy overlooked assets with under-utilized infrastructure and then use its exploration expertise to grow production. However, the company's questionable acquisition of Detour Gold prompted us to trim our position in favor of other compelling opportunities.

Commodity Chemicals

We favor defensive sectors that could benefit from low commodity prices.

• We initiated a position in Orica, the largest supplier of industrial explosives and blasting services to the mining, quarrying, seismic, and construction industries globally. It also manufactures industrial and specialty chemicals for the mining industry. In our view, Orica's access to copper miners is favorable given the medium- to long-term outlook for copper prices and the potential for growing demand as the adoption of electric vehicles grows.

Semiconductor Equipment

While the portfolio has limited exposure to the space, we think that parts of the industry could benefit from thin inventories when economic activity recovers dynamics.

• We initiated a new position in Cabot Microelectronics, an electronic materials supplier that will benefit from rising semiconductor cost curves. We expect Cabot's legacy tungsten slurries business to grow faster than the semiconductor industry while holding or adding to margins as a result of increasing materials per chip.