Following the election, we saw a sharp bifurcation between the performance of growth and value stocks. Value-oriented sectors, including financials, energy, and industrials and business services, got a boost from the reflation trade as investors rotated into cyclical industries deemed to benefit the most from the policies proposed by the incoming U.S. presidential administration. On the other hand, growth-oriented sectors, such as information technology, health care, and consumer discretionary, lagged. Regardless of the market's initial reaction, it's too soon to definitively declare winners and losers. As such, we remain steadfast in our bottom-up approach to stock selection based on rigorous fundamental research. Sentiment can certainly be a powerful force in the near term; however, over the long run, returns in the stock market are driven by growth in earnings and cash flows. Despite recent lackluster returns, fundamentals in information technology, consumer discretionary, and several health care names are actually quite vibrant.

Information Technology

In the information technology sector we continue to emphasize disruptive business models and technologies that that we believe can sustain high growth for several years. Secular demand for public cloud computing services remains a key growth driver; select companies benefiting from the shift of advertising spending to digital and social media channels also present compelling investment opportunities. We also favor companies driven by the convergence of communications and computing, including Internet software companies and those that will benefit from broad global tailwinds in digital payments.

• We increased our position in Microsoft as we believe the company's continued evolution to cloud computing remains on track. The company's recent acquisition of LinkedIn should also be additive to Microsoft's core Office franchise. We believe the software giant is also improving its market positioning, execution, long-term prospects, and capital allocation management.
• Juniper Networks made progress in diversifying its customer base, ramping new products across its portfolio, and improving its cost structure. Shares advanced after the company reported strong quarterly earnings and guidance, driven by sales growth in new products, particularly in the switching segment. We opportunistically sold shares on recent strength in the stock.

Consumer Discretionary

Our sizable exposure to the consumer discretionary sector is composed primarily of companies that we believe are well positioned to take advantage of powerful secular trends in retail spending. Consumption continues to grow and consumer confidence is strong, with unemployment at multiyear lows and wages starting to grow after years of stagnating. Within the sector, we continue to emphasize companies with innovative business models that are benefiting from secular growth in ecommerce retail and shifting dynamics in travel and leisure services.

• Yum! Brands, the parent company of Taco Bell, KFC, and Pizza Hut, spun off its China business during the period. Following the spinoff, we bought shares of the legacy enterprise. We are positive on the company's refranchising initiatives, which we believe can lead to higher margins, a more stable cash flow stream, and more capital being returned to shareholders.
• We sold shares of Hanesbrands during the quarter on concerns that the vertically integrated and owned supply chain model is becoming increasingly less efficient with more acquisitions. We also believe the company is exposed to negative tax reform optionality. Thus, we redeployed the proceeds of the sale to fund investments with stronger upside potential.

Health Care

We are taking a more cautious approach given the real risk of regulatory reform for the health care sector, particularly on drug pricing. While we've reduced our exposure to the sector, we still believe there are opportunities in select therapeutics companies developing promising drugs that address large, unmet clinical needs. In our view, some of the most attractive investment themes in the sector include managed care industry consolidation, innovations in medical equipment, and robotic technology.

• We bought shares of biotechnology firm Biogen as we believe the company has significant medium- and long-term growth potential in several of its pipeline programs. We expect Spinraza, a recently approved treatment for all types of spinal muscular atrophy, to be accretive to earnings starting in 2017. The firm also has a steady base business of multiple sclerosis treatments, including Tecfidera, which should be a reliable revenue generator for the next several years.

• We trimmed our position in Allergan during the period; however, we still maintain a constructive view of the company as we believe it is well positioned to deliver organic growth from several of its business segments. More streamlined operations following the sale of its generic drug business in the third quarter of 2016, along with a number of upcoming product launches, could also bode well for the firm's long-term earnings growth.