Our bearish outlook for oil prices and belief that we are in the middle of a secular downcycle for commodities have not changed. Accordingly, we continue to favor defensive industries and areas of the natural resources universe, such as specialty chemicals, that we believe stand to benefit from lower commodity prices that reduce their input costs. The coronavirus pandemic and efforts to contain its spread have ground global economic activity to a halt and resulted in unprecedented demand destruction for crude oil and other commodities. These developments have completely changed the macro backdrop and opportunity set relative to where we were in the fourth quarter. We have begun adjusting to this new environment, with an eye on the next two to three years. So far, these efforts have focused on high-grading the portfolio by exiting lower-conviction and late-cycle ideas while adding to high-quality names that boast strong balance sheets, exhibit some leverage to commodity prices, and have the potential to do well in the early stages of a recovery. We also 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. Although we are confident than energy stocks will rebound from current depressed levels, we plan to move slowly and selectively in positioning for this opportunity. As always, we remain conscious of valuation, industry fundamentals, and longer-term risk/reward propositions for the individual companies in which we invest.

Integrated Oil and Gas

We refined our positioning within in integrated oil and gas, an industry that historically has been a relative haven during energy bear markets because of the companies' scale, financial strength, and dividend yields. However, we believe the universe of so-called safety plays in the oil and gas investment universe has shrunk, as the challenges of moving the needle on production growth become more pronounced at size. We believe some majors' fascination with pursuing low-carbon ventures could distract their�management teams and dilute returns. We favor names that should be able to grow their hydrocarbon output in a cost-conscious manner and have exhibited a commitment to returning capital to shareholders.

• We exited BP on concerns that its strategic goal of reaching net-zero carbon emissions could hamper returns. We are also skeptical of the decision to ramp up investment in renewables at a time when the cost curve for clean energy is declining rapidly and an abundance of inexpensive capital has intensified competition in this space.
• We eliminated Occidental Petroleum in favor of other investment opportunities. In the current environment, we believe the Permian Basin-focused oil and gas producer faces heightened execution risk and challenges deleveraging after its controversial acquisition of Anadarko Petroleum.
• We added to Chevron and Norway-based Equinor (formerly Statoil), names with solid�balance sheets and strong management teams�that we believe offer quality exposure to�oil beta. These are early-cycle stocks that we would like to own when we emerge from the current crisis.

Diversified Metals and Mining

We remained underweight the industry and defensively positioned with the metals and mining names held in the portfolio, focusing on companies with solid balance sheets and records of�sound capital allocation. Even before the coronavirus outbreak, we believed that a global oversupply of many base metals could be a headwind through much of what we regard as a secular bear market in commodities. Nevertheless, we have a favorable medium- to long-term outlook for copper prices because of the potential for demand to expand as adoption of electric vehicles grows.

• We added to BHP, one of the largest diversified miners. The stock sold off and underperformed some of its peers on concerns about the company's exposure to crude oil and copper, a base metal whose price historically has exhibited sensitivity to the global economy's growth rate. We believe BHP's near-term price dislocation created an opportunity to add quality beta that could do well in the early stages of a recovery.
• We initiated a position in OZ Minerals, an Australia-based miner that will ramp up copper production from a second project in 2020, setting the stage for a potential inflection in cash flow once this operation is running smoothly. We also like the company's strong development pipeline, which includes potential mining projects targeting copper, nickel, and cobalt.
• We exited Teck Resources, a diversified miner that generates a meaningful proportion of its cash flow from metallurgical coal.

Paper and Forest Products

We increased the portfolio's allocation to this industry, with an emphasis on U.S. and European producers of containerboard, a commodity where we view the longer-term supply/demand outlook as favorable.

• We initiated a position in Westrock and added to Packaging Corporation of America, two of the leading U.S. containerboard producers. Although we acknowledge that the macroeconomic challenges stemming from the coronavirus pandemic create near-term uncertainties for these companies, our long-term investment theses remain intact. We believe industry consolidation should help to moderate the cyclicality in containerboard pricing, while the increasing penetration of e-commerce and the trend toward paper-for-plastic substitution in packaging create long-term demand tailwinds.

Diversified Chemicals

We refined the portfolio's position in diversified chemicals to upgrade our exposure and emphasize our highest-conviction investment ideas.

• We exited DuPont de Nemours, a specialty chemicals conglomerate spun out from the former DowDuPont, in favor of investments that we believe offer better risk/reward profiles.
• We eliminated Eastman Chemical. Although we appreciate the relative resilience of the mid-cap chemical conglomerate's growing portfolio of specialty chemicals, recent market volatility has created more attractive risk/reward profiles elsewhere in our investment universe.
• We initiated a position in Huntsman, a polyurethane company with a relatively clean balance sheet that we believe has improved the return profile of its underlying business mix by expanding its presence in downstream applications. In our view, Huntsman's growing portfolio of intermediate chemicals should generate more consistent returns through the cycle than its legacy operations, creating the potential for the stock to rerate to a higher valuation multiple as the market comes around to this change.

Oil and Gas Refining and Marketing

The portfolio remained underweight oil and gas refining and marketing, an industry that tends to do better toward the middle of�an economic cycle. The extent of the fuel demand destruction stemming from the global response to the coronavirus pandemic and its macroeconomic ramifications mean that refining stocks likely will not be a haven during this downcycle. In the intermediate term, we have concerns about potential supply-side risks stemming from Saudi Arabia's plans to add refining capacity.

• We eliminated Valero Energy. Although we appreciate the U.S.-based independent refiner's flexibility to process a wide range of different crude grades and easy access to export markets from the Gulf Coast, we exited this position in favor of opportunities that we believe offer better risk/reward profiles.