We believe we are well positioned to benefit from a post-pandemic reflationary environment. �Broadly speaking, we continued to position the portfolio in "forgotten" stocks particularly those that have undertaken "self-help" measures or those with restructuring stories that will enable them to thrive in a post-pandemic world. The pandemic has prompted management teams of companies in EM to become more proactive in their restructuring efforts - cutting costs, selling assets, shifting capacity, and changing product mix.� Our research has enabled us to find opportunities among these companies.

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In the quarter, we found new investment opportunities within financials. We moderated our exposure to materials and oil-related names, taking profits in some given their strong performance and deploying the proceeds to financials. Many of EM banks especially in Latin America and Europe have started the rate hike cycle, benefiting banks. �We think most commodities are "above mid-cycle", prompting us to reduce our positions.

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We remain focused on our process of finding "forgotten" stocks with asymmetrical risk-return profiles, where fundamental changes or operational improvements may drive a rerating, while at the same there is potential downside support from strong balance sheets and healthy dividends.

Financials

We found opportunities within financials, where we have a significant exposure. Overall, the banking system in EM had exhibited an orderly response to the challenges posed by the pandemic. �We own EM banks that have good franchises and strong balance sheets while still fitting our investment framework. In the quarter, we purchased shares of banks with ongoing "self-help" stories that remain underappreciated.

• Saudi British Bank is a subsidiary of HSBC Bank, and one of the strongest corporate and retail banks in Saudi Arabia. Its corporate lending has lagged; however, we invested in the stock as we look favorably at the new management team and the bank's restructuring story. We think it is well placed to benefit from the potential corporate growth over the medium term given its liquid and well capitalized balance sheet.

• We bought shares of CIMB Group, a Malaysian bank with exposure to Indonesia, Thailand, and Singapore. Like most banks, profits were hit by the pandemic which reduced the demand for new loans and prompted an increase in provisions for doubtful debts. We believe that investors have yet to fully appreciate the bank's self-help efforts. The bank reduced its operating expenditure last year on the back of various cost-rationalization initiatives.

• Firstrand is one of the largest South African banks by assets with a comprehensive range of banking services. About 80% of its normalized earnings are from South Africa and the rest from the UK and the rest of Africa. We purchased shares because we view Firstrand as one of the highest quality banks in EM and believe that its superior return-on-equity compared to its peers is sustainable in the medium term.

Materials

We reduced our allocation to materials, where we have a considerable absolute exposure. We took profits following the significant rise in commodity prices as the global economic outlook improves. We think most commodities are "above mid-cycle" and hence, we reduced our positioning. We recognize, however, that there may be a chance that the cycle may be prolonged due to "green" infrastructure spending especially in China where there is greater focus on environment protection.

• We sold Anhui Conch, one of China's largest cement producers, as our investment thesis has played out. We acquired the cement producer as we deemed it a beneficiary of consolidation amid slowing new capacity additions in China. We liked that it shifted its focus way from market share competition to profitability and that it's a well-run company with cost leadership in the industry and an unlevered balance sheet. However, with limited scope for volume growth, potentially range bound cement prices, and a lack of visibility on a possible change in its capital allocation policy, we decided to sell the stock.

• POSCO is South Korea's largest steelmaker and we have sold shares as we see limited potential upside. While the supply and demand dynamics remain constructive, we expect steel prices to peak in the next few quarters.

Consumer Discretionary

The portfolio has a sizeable exposure to the consumer discretionary sector in absolute terms. While we believe that consumer spending will increase as economies recover from the coronavirus, we expect that reopening of borders and the return of travel demand may vary across EM. Within the quarter, we favored consumer discretionary names that have undertaken self-help measures.

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• We purchased shares in Gree Electric Appliances, one of the largest air conditioner manufacturers in China, which we view as a "forgotten" stock that has undertaken self-help measures and one with a catalyst - an employee share ownership scheme. It has been weighed down by the coronavirus pandemic, destocking, and channel reform. However, we believe that Gree has seen the worst and that going forward earnings will likely improve due to the company's growth potential, dominant market share and the upgrade trend in consumption.

• We used proceeds of the sale of Haier Smart Home shares to acquire Gree Electric shares. Home appliance maker Haier, which has a strong positioning in refrigerators and washing machines, has priced in the expected margin upside and hence, we decided to deploy our funds elsewhere.�

• We acquired shares of Huayu Auto, a high-quality auto parts supplier in China. It has executed well in the past and will likely benefit should EV pick up.

• We bought shares of Singapore-listed Jardine Cycle & Carriage, the investment holding company of the Jardine Matheson Group in Southeast Asia. The Jardine group is undergoing a restructuring which we view as positive for Jardine Cycle as it will pave the way for increased transparency. In addition, Jardine Cycle traded at a discount to its unit Astra International, Southeast Asia's largest independent auto group. We see value in Astra, a market proxy for Indonesia, given the good execution of its management team and its net cash position.�

Industrials and Business Services

We have an overweight in industrials and business services. Within the sector, we favor machinery stocks with resilient free cash flow which we believe may benefit from the pick-up in demand for container ships, infrastructure and mining projects as the pandemic dissipates. We own shares that will likely benefit from China's plans to accelerate renewable energy projects and stocks that will likely gain from the Indian commercial vehicle cycle recovery. We own airport names that we think will benefit from traffic recovery prospects.

• In the quarter, we sold shares of Zhejiang Expressway, an operator of high-grade toll roads in China's eastern province of Zhejiang. Its 2020 results beat expectations despite the impact of the coronavirus pandemic, but the market continues to underappreciate the stock. Based on our sell discipline, we will not be tempted to keep a flatlining stock in the portfolio beyond a two to three-year time horizon.

IT

We remained substantially underweight in IT. Given our investment criteria of favoring "forgotten" or out-of-favor stocks with asymmetric risk/reward profiles, we have avoided owning the crowded technology names. We made changes to our holdings in the quarter.

• We sold shares of South Korea-based SK Hynix, one of the world's largest maker of DRAM chips, locking in gains as the stock has hit our target price. Shares may be under pressure in the coming months as we are near the peak of the current memory upcycle.

• AAC Technologies is a maker of miniaturized components for smart mobile devices. We bought shares of the company because we are enthused by its venture into new products such as camera lenses, as it will tap its precision engineering capabilities. We like that the management is actively engaged and committed to making improved versions of their core acoustics products and finding new markets.