Investment Commentary and Outlook


During the third quarter of 2021 major North American equity indexes struggled to make headway in, mirrored by a very modest advance by the MSCI World Index. Investors are dealing with several obvious crosscurrents, with opposing implications for markets.

Current Market Conditions

Inflation expectations, the COVID-19 pandemic and geopolitics will all play an important role in determining the outcome of the current situation.

  • Inflation. The spectre of rising inflation looms over equity markets, and a long-term jump in inflation would likely necessitate higher interest rates. Certainly, higher interest rates would pressure valuations in some high-flying sectors such as technology, but would benefit others, such as banks.
  • Deflation. Yes, the opposite of inflation. Despite the recent increases in the prices of energy, food and other products, there are legitimate arguments that as global supply chain pressures ease, people around the world return to work, technology-driven productivity continues to rise and demographic challenges return to the fore (e.g., low birth rates in Europe, North America, and parts of Asia), prices will once again come under pressure. If this view of the world transpires, interest rates are likely to stay lower for longer, and growth equities carrying high valuations might continue to lead the way for investors.
  • COVID-19 pandemic. When will the virus be brought under control? When can developed economies with access to the vaccine fully reopen? And when will less fortunate nations finally be able to acquire and deliver doses to their populations? The answers to these questions will play a big role in determining global GDP growth and subsequent success or failure of large industries, such as travel.
  • Supply chains. Supply chains are being disrupted by COVID-19-induced port closures, and a lack of raw materials and critical inputs, such as semiconductor chips. The automotive sector, for example, cannot ramp production to even meet current demand. All these challenges are pushing prices higher but slowing economic growth.

With all these complex factors at play, it is not an easy time to be a central banker!

Certainly, there are reasons for optimism. Unmet demand today should lead to ongoing demand in the years ahead, as companies play catch up. Signs that the virus is peaking in parts of the world give rise to the possibility of travel and of other sectors enjoying a reopening boom. Furthermore, many companies have proven to be adaptive as well as flexible. These companies are benefiting from shifts in the way consumers and businesses spend money and interact.

Pembroke’s Balanced and Measured Approach

How is Pembroke approaching these markets conditions? With a balanced and measured approach.

First, all of Pembroke’s portfolios offer balance through exposure to a wide range of industries and sub-industries. Within each, the commitment to growth and balance sheet strength remains paramount. At the same time, the firm maintains positions in some well-managed companies that have seen their 2021 revenue pressured by the pandemic, but which have strong competitive advantages and unchanged opportunities, setting them up well for an economic reopening.

Pembroke is also invested in companies which have seen their addressable markets and company-specific prospects grow as a result of the pandemic. In many of these cases, the stock prices have risen to new highs.

This is where Pembroke’s measured approach to portfolio management comes into play. As growth investors, we accept that some of our holdings might appear expensive on traditional near-term valuation metrics. While we are willing to look out many years in our analysis of our holdings’ prospects, we also closely monitor our overall exposure to positions which might be highly sensitive to changes in the market’s overall valuation parameters.

As always, balance sheet strength remains critical during this uncertain period. Companies need the financial resources to withstand unexpected headwinds, but also to take advantage of opportunities when their competitors are struggling.

The investment team is satisfied with how its portfolios have advanced on an absolute basis in 2021, and how they have performed against their benchmarks. The recipe going forward is to continue with a balanced and measured approach, while remaining committed to identifying growth companies run by shareholder-aligned management teams who have long-term view toward creating wealth for their investors.




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This report is for the purpose of providing some insight into Pembroke and the Pembroke funds. Past performance is not indicative of future returns. Any securities listed herein, are for informational purposes only and are not intended and should not be construed as investment advice nor is it a recommendation to buy or sell any particular security. Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Pembroke seeks to ensure that the content of this document is correct and up to date but does not guarantee that the content is accurate and complete and does not assume any responsibility for this. Pembroke is not responsible for decisions or actions taken or made on the basis of information contained in this document.