As always, our trading activity during the quarter was mainly driven from the bottom up. The portfolio's sector and region allocations are primarily a result of individual stock considerations but are also influenced, to a lesser degree, by an assessment of macroeconomic and geopolitical considerations. That being said, we believe we are heading toward a macroeconomic crossroads, particularly regarding themes around the regulatory landscape for near-monopolistic technology companies and U.S.-China trade. As such, we have been attempting to position the portfolio in such a way that we can participate in any positive-resolution-driven rally (such as a trade deal) while dampening the negative effects of any deteriorating factors.

�

Sector-wise, our allocations to information technology increased, while consumer staples and communication services decreased. Regionally, our exposure to developed Europe increased, while our allocation to North America 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. That being said, increasing regulatory scrutiny and concerns about privacy have been a cloud over the big internet companies in recent months, and we�have been�managing our position sizes in light of these risks. We look for innovative companies with the potential to be true market disruptors. The shifts toward greater connectivity, mobility, and use of cloud software applications are powerful long-term trends, and the markets for consumer and enterprise technology products are expanding in all regions. Rapid growth in the use of the internet, particularly in Asia, has yielded many compelling stories with long runways for growth. We also have a sizable exposure to semiconductor stocks that are trading at attractive valuations and should benefit from content growth in the automotive and industrial end markets as well as investment in data centers and artificial intelligence.

�

• We initiated a position in Applied Materials, which provides materials engineering solutions in the production of semiconductor chips and advanced display. We think the company is extremely high quality and well positioned to benefit as Moore's Law continues to slow and innovation is driven by materials innovations, which is one of Applied Materials' strengths. The firm is also historically very profitable during cyclical downturns, has an attractive valuation, and we think the stock should rerate as DRAM and NAND prices begin to reaccelerate over the next few months.
• We initiated a position in Advanced Micro Devices, a fabless digital semiconductor designer of both microprocessors and graphics processors. The company is small compared with competitors like Intel and NVIDIA, but in our opinion is poised to rapidly take market share given its recent product portfolio ramp-up and the acceleration of AI technology.
• We eliminated our position in PayPal. The stock performed well for us for several years but pulled back recently amid intensifying competition in the digital payments space, and we have not seen signs of the level of innovation needed to battle such competition. Thus, we chose to exit our position.
• We eliminated our position in Disco, which manufactures tools and consumables for the semiconductor, industrial, and construction industries. Although we continue to like Disco, we chose to swap shares for Hamamatsu Photonics where we have higher conviction and the risk/return profile is more attractive.

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. The "winners" in the sector are becoming increasingly crowded investments, and, thus, it has become more difficult to find opportunities where we feel we have unique insights into improving returns. Given the polarized structure of the sector, our focus is on high-quality names that we think 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 defended several of our core Chinese internet-related names, including Ctrip.com International and Alibaba Group Holding, in prudent weights by adding to our positions as the stocks pulled back on broader macroeconomic worries. We have high conviction in these companies given their incredibly dominant market positions, huge end markets that are still underpenetrated and undermonetized, smart capital allocation, and rapid pace of innovation.
• We initiated a position in Chinese hotel operator Huazhu. We think the company is the best and most efficient hotel operator in China and should drive accelerated earnings through market share gains and a better profit mix from more franchise models. The stock has underperformed recently due to a bottoming demand cycle, and we took the opportunity to start a position.
• We eliminated our position in Farfetch, the leading global luxury digital marketplace. While the company reported strong revenue growth over the quarter, profitability remained weak, which spooked investors. With the firm's growth trajectory now more opaque, we chose to exit our position.

Consumer Staples

We feel many consumer staples companies are losing their traditional distribution strength due to the ongoing shift to e-commerce and social networking models. We also find the sector broadly expensive as investors have flocked to higher-yielding stocks in recent years. The ongoing disruption, coupled with stretched valuations, means that we see limited opportunities.

• We eliminated our position in personal care and tissue manufacturer Essity. With our thesis largely played out, we chose to take profits and reallocate to higher-conviction names.

Health Care

Health care remains a fertile area for growth potential and accelerating technological discovery. Our focus is on companies that are key disrupters and innovators in the field, particularly in the medical technology and biopharma spaces as well as companies where we have particular insight into key drivers of their durable growth. We also favor names that we feel are durable grinders with less exposure to potential regulatory headwinds and changes in health care policy in the U.S., like Danaher and Alcon.

• Abiomed is a medical device firm that develops and manufactures the Impella family of cardiac pumps. We initiated a position over the quarter as we think the company is capable of significant growth: It pioneered the Impella pump and operates in a very underpenetrated segment with no real competitors. We think Abiomed should see accelerating return on capital over the next few years as it continues to develop in key markets.

• We eliminated our position in medical technology firm Becton, Dickinson and Company. The stock has produced strong performance in recent months, and we now believe our thesis has played out. We chose to exit our position and reallocate funds to names with greater upside potential.