The past year was one of the most extreme environments investors have experienced for some time. A year that started with a crisis of confidence surrounding growth effectively finished with almost a mirror image of its beginning, with some degree of raging bull mentality that firmly consigned early year fears to history. The surprise victory of Donald Trump changed expectations around U.S. growth, inflation, and interest rates given the potential policy implications of a Republican-controlled legislature with tax cuts, deregulation, repatriation of foreign cash, and possible U.S. fiscal stimulus all on the table. Markets voted quickly and aggressively that growth and inflation will rise, giving a shot in the arm to some deep cyclical segments of the market. With uncertainty reigning on any specifics, at this point, we would caution against chasing a broad-based cyclical bounce in order to avoid disappointment.

We remain cautious on the commodity-complex and stocks solely reliant on near-term macro improvement, but have been active in financials, maintaining or increasing conviction positions in U.S. banks and U.S. capital markets especially, given our belief that some magnitude of interest rate rise was likely and that inflation was on the rise. While we have been active in the U.S., we would reiterate that we continue to favor emerging market banks in domestically-driven growing economies over many developed market counterparts.

While the market focuses on the pro-cyclical theme, we have also been active in the information technology sector, targeting companies that have long-term and stand-alone earnings power, and have added stocks with the potential for further growth surprise if we see an acceleration of consumer spending or benefits flowing to individual companies from U.S. corporate tax harmonization. The political events in 2016 have not stopped innovation, disruption, or the growing use of technology in both developed and emerging markets, and we continue to like e-commerce, social media, and cloud software companies over the long term.

Many of the consumer discretionary stocks we own are disruptive share gainers as a result of their products and services. However, we have also been adding to U.S.-listed leisure and retail stocks in recent months. Similarly, we have defended our highest conviction earnings growth stories in the consumer staples sector and remain overweight given the big rotation out of the sector since the U.S. election and relatively attractive valuations.

At a country and region level, we remain overweight emerging markets, with our exposure largely concentrated in India, Indonesia, Philippines, and Peru. These countries have strong long-term growth prospects driven by domestic consumption trends, as well as favorable demographics that we believe can spur ongoing economic growth in what remains a low to moderate growth world. This should provide an economic and earnings advantage over the long term.

Overall, we remain constructive on markets and, as importantly, on our holdings given the positive building blocks of return that we can see over the course of 2017 and beyond. While macro uncertainty will remain part of any environment and has been especially dominant in the past year, stocks are driven by valuations, changes in earnings power, and cash flow generation over the long term. We believe these fundamental pillars will ultimately hold through any evolution of this current equity cycle and believe this will enable us to continue to deliver on our long-term performance objective.