The portfolio retains its growth tilt; we believe the extent to which the compounding of strong earnings growth over several years can drive share prices is underappreciated by other investors. The depth and breadth of our global research resources and a strong culture of collaboration and ideas sharing give us multiple perspectives, keener insights, and better information, enabling us to identify companies that can sustainably increase earnings at a high rate for many years. We aim to hold these long-term winners for an extended period within a broadly diversified portfolio - leading to lower turnover - and frequently make use of periods of market volatility to add to our positions.

Indeed, we have used the recent sell-off and style rotation in emerging markets as an opportunity to add to our preferred names at compelling prices and attractive valuations. For example, the Brazilian market fell sharply after the U.S. presidential election on concerns about the unwinding of the carry trade; however, we remain overweight as we continue to see an improvement in the outlook here. We believe the central bank has scope to cut interest rates further as inflation falls, and we initiated a position in a Brazilian telecommunications stock over the quarter. Other opportunities have also arisen following the recent "shake up" in markets, and we have investment trips to Mexico, Taiwan, and Hong Kong planned in the first quarter of 2017. Overall, we are finding a range of excellent growth opportunities among information technology (IT) and consumer-related names and the portfolio is overweight to these sectors. There is less growth potential in our view in sectors such as energy and utilities, and we are underweight here.

Strengthening Consumer Across Emerging Markets Supportive for the IT Sector

By far the largest absolute position in the portfolio is in IT, an area of the market we expect to gain from the growth of consumer spending across the emerging world. We are also overweight in relative terms. Over the quarter, we added to our position in Alibaba, China's dominant e-commerce platform, on some encouraging underlying trends. Its e-commerce business is performing above expectations, and revenues and margins are improving. A lot of this improvement has been driven by cost control, which we find encouraging. In our view, the prospects for long-term monetization of the e-commerce business and future margin improvement look strong and are supportive for the name.

We Remain Overweight to Consumer Names and Added to Positions Here

A key long-term theme for the portfolio is the burgeoning middle class in emerging markets and the resulting increase in consumer spending. We have identified strong investment potential among consumption-related companies and added to a number of our holdings here over the period.

• We added to Amorepacific, the largest domestic cosmetics company in South Korea, which also has a fast-growing international business in China and the ASEAN region. Amore has a durable and long-run growth profile in its target markets with the potential to become one of the leading cosmetics companies in the world.
• We also topped up our position in LG Household & Healthcare, the largest household products company in South Korea and the number two domestic cosmetics company. Results showed that duty-free sales remained strong despite tough comparisons and indicated that Chinese consumption of cosmetics continues to be robust.
• Conversely, we have trimmed our position in South African food retailer Shoprite following a period of strong outperformance and on news of an acquisition that we believe increases uncertainty for future stock returns. The shares were up strongly in U.S. dollar terms and versus the MSCI Emerging Markets Index during the year, and market expectations for the company are now more closely aligned with ours. Shoprite recently announced plans to combine business elements with the African operations of fellow South Africa-based retailer Steinhoff; we are still analyzing the details of the deal, but our initial impression is that it reduces the level of visibility of the company's prospects.
• We eliminated our position in global beer and soft drinks firm SAB Miller as the merger with fellow global brewing company AB InBev was finalized and completed. As a result of the deal, a position in AB InBev was also initiated. It is the world's largest beer company, formed over the past decade through a series of transformative M&A deals. Despite being a global company, over half of its earnings come from emerging market countries. We expect double-digit earnings growth over the next three years as synergies following the SAB Miller acquisition are realized. Support for the stock should also come from free cash flow generation and the dividend yield.

Finding Good Opportunities Among Financials, Particularly Private Sector Banks

Financials represent one of the portfolio's largest absolute positions, and should continue to benefit from the strength of the emerging consumer. We are finding some strong investment potential among private sector banks in a number of markets, such as Brazil. For example, we hold Brazilian bank Itau Unibanco, although we trimmed our position during the quarter following a strong period of outperformance. Risk/reward levels are now more fairly priced, and we see more limited upside in the near term, although looking longer term, we still like the name, with its exposure to the growth in Brazilian consumer demand. We are avoiding financial stocks in China due to our ongoing concerns over the banking sector and the non-recognition of potentially problematic loans.

Energy Remains a Key Underweight Amid Structural Headwinds

We retain our long-standing and substantial underweight to the energy space. Our analysis suggests that the bear market for oil has many years left to run. Oil inventories are at elevated levels and - in our view - will not be cleared quickly. The structural oversupply of oil is related to rapidly rising productivity in the energy industry with, for example, the development of techniques for extracting shale oil at an early stage. Oil companies are getting better at what they do and more extraction capacity is being added, particularly in the U.S. - an unfavorable backdrop for oil price trends over the medium to long term. However, we are overweight to Russia and the UAE - markets that are both linked to the price of oil - partially in a bid to shield the portfolio from relative downside in the event of any near-term rallies in the oil price.

Remain Underweight Telecoms Although Selected Opportunities Are Opening Up

The portfolio remains considerably underweight to the telecommunication services sector. Broadly speaking, the sector is mature and "ex growth," even in emerging markets. However, selective domestic telecommunications markets are starting to look attractive, including Brazil, where we initiated a position during the quarter. We purchased Brazilian telecommunications operator Telefonica Brasil (Vivo), which we believe has a superior network, client base, and management team. We also expect the regulatory environment to improve.

Portfolio Has Low Exposure to Utilities as Growth Potential Is Limited

We are generally finding better growth potential outside the utilities space, although we have some stock-specific exposure to this sector. For example, we hold Chinese utilities conglomerate Beijing Enterprises, although we trimmed our position following a period of strong outperformance on the back of a solid set of results that facilitated a rerating of the stock. Market expectations for the company are now more closely aligned with ours, but we still like the fundamentals of the business and outlook for the firm.

We Have Stock-Specific Exposure to Industrials and Business Services but Remain Underweight

The portfolio has a low weighting to this relatively small sector. While we retain some stock-specific exposure, during the quarter we eliminated our position in Container Corporation of India, the domestic market leader in rail freight transportation. The outlook for the stock is now more uncertain given the victory of U.S. President-elect Trump and his anti-trade rhetoric during the election campaign. Furthermore, the demonetization efforts in India are a significant headwind for the stock-this is likely to result in weaker import demand in the coming quarters.