January 2026
TABLE OF CONTENT
1. Introduction and Market Context
2. Canadian Equity Strategies
3. U.S. Equity Strategies
4. International And Global Equity Strategies
5. Balanced Strategies
6. Fixed Income Strategies
7. Portfolio Positioning
8. Strategy Roles Within a Portfolio
1. INTRODUCTION AND MARKET CONTEXT
Global equity markets produced positive results overall during the fourth quarter of 2025, thanks to easing monetary policy and resilient corporate earnings. Major central banks adopted a more accommodative stance, improving investor sentiment, while corporate earnings proved more resilient than anticipated. Nevertheless, performance was far from uniform. Returns varied significantly across regions, sectors and investment styles, as investors reassessed valuations and the sustainability of growth.
This environment rewarded diversification and discipline. Although headline market indices pointed to a positive outlook, significant underlying dispersion was evident. Certain regions and equity styles benefited from a renewed preference for stability and income, while higher-valuation growth areas faced greater scrutiny. In the last quarter, Pembroke’s strategies reflected these cross-currents, with outcomes varying by geography and mandate, while remaining consistent with their intended long-term objectives.
2. CANADIAN EQUITY STRATEGIES
Canadian equity markets produced modest and inconsistent results during the fourth quarter, reflecting a combination of monetary policy easing, mixed economic data, and ongoing dispersion across sectors and investment strategies. Although lower interest rates provided some support for equity valuations, investor sentiment remained selective, favouring companies with visible cash flows, resilient balance sheets and stable dividend payouts. Growth-oriented areas of the Canadian market were subject to greater scrutiny, particularly where high valuations left little margin for disappointment.
Against this backdrop, Pembroke’s Canadian equity strategies produced mixed but generally resilient outcomes in absolute terms. Performance across mandates ranged from high single-digit positive returns to roughly flat results, reflecting both style differentiation and the outcomes of underlying stock selection. Relative performance versus benchmarks also varied by strategy, highlighting the importance of mandate-specific objectives and portfolio construction.
The Pembroke Canadian Growth Strategy recorded low-single-digit positive absolute performance during the quarter, while underperforming its benchmark. Results were influenced by both stock selection and sector allocation, with the challenges being most evident in the Information Technology and Financials sectors. Underperformance was driven more by omission than commission, as certain constituents of the benchmark not held in the portfolio performed strongly during the period. These effects were partially offset by stronger stock selection within the Industrials sector.
The Pembroke All Cap Strategy delivered roughly flat absolute performance and underperformed its benchmark. Both sector allocation and stock selection detracted from relative results, with the Industrials sector being the most meaningful source of underperformance. Within that sector, negative contributions stemmed from a combination of allocation positioning and the weaker relative performance of selected holdings during the quarter.
In contrast, the Pembroke Dividend Growth Strategy generated positive absolute returns in the high-single digits and outperformed its benchmark. This was driven by strong stock selection, particularly within Industrials and Communication Services, which offset weaker selection in Financials and less favourable sector allocation. The strategy benefited from the market’s renewed preference for income and stability.
3. U.S. EQUITY STRATEGIES
U.S. equity markets experienced heightened volatility during the fourth quarter of 2025, as investors reacted to shifting expectations around interest rates, monetary policy independence and the durability of economic growth. While the U.S. Federal Reserve delivered further rate cuts, longer-term bond yields moved higher, contributing to a steeper yield curve and renewed pressure on equity valuations, particularly in growth-oriented segments of the market. Market leadership was narrow and unstable, with investor sentiment shifting away from more cyclical and economically sensitive sectors as the quarter progressed.
Against this backdrop, Pembroke’s U.S. equity strategies faced a challenging environment. Both of the strategies posted negative absolute returns during the quarter, with declines ranging from the mid- to high-single digits. Relative performance also lagged behind the benchmarks, reflecting a combination of macro-driven style headwinds and factors specific to the portfolios.
The Pembroke U.S. Growth Strategy recorded a mid-single-digit decline in absolute terms. Performance was negatively affected by both sector allocation and stock selection, with security selection within Industrials representing the most significant detractor. Several holdings underperformed during a period when investors reduced exposure to cyclical growth companies, amplifying the strategy’s general underperformance relative to the benchmark.
Similarly, the Pembroke Concentrated Strategy* delivered a high-single-digit decline and materially underperformed its benchmark. As with the U.S. Growth Strategy, both sector allocation and stock selection detracted from results, with Industrials again the most meaningful source of weakness. The strategy’s more focused nature magnified the impact of these stock-specific outcomes during a quarter marked by sharp rotations and limited areas of offsetting strength.
*Also known as the Pembroke Select Strategy
4. INTERNATIONAL AND GLOBAL EQUITY STRATEGIES
During the quarter, Pembroke’s international and global equity strategies recorded low- to mid-single-digit declines and generally underperformed their benchmarks. Small-cap oriented international strategies were particularly affected, as smaller companies trailed behind their larger peers in several regions.
As with U.S. strategies, stock selection was the primary driver of relative underperformance. Holdings in the Industrials, Information Technology and Health Care sectors detracted most from results, reflecting a combination of company-specific developments and changing regional economic trends. Sector allocation had a more modest impact overall. Although short-term outcomes were challenging, the portfolios remains intentionally diversified to mitigate the impact of any single stock or theme, in line with a long-term investment horizon.
5. BALANCED STRATEGIES
Pembroke’s balanced strategies produced positive results during the quarter, demonstrating the advantages of diversification across different asset classes.
The Pembroke Canadian Balanced Strategy achieved positive mid-single-digit returns and outperformed its benchmark, primarily due to strong security selection. Equities were the main contributor to both absolute and relative performance, with notable stock-specific strength in the Communication Services and Industrials sectors. Despite being modest in absolute terms, fixed income returns added to relative performance due to portfolio positioning compared to the benchmark. While sector allocation was a modest headwind, most notably in the Materials sector, the impact was more than offset by effective security selection across the portfolio.
The Pembroke Global Balanced Strategy delivered low-single-digit positive returns, but underperformed its benchmark. Fixed income contributed positively to relative performance. However, this was more than offset by negative equity contributions across all regions. This underperformance reflected a combination of negative stock selection and sector allocation within equities.
6. FIXED INCOME STRATEGIES
During the quarter, bond markets responded positively to a third interest rate cut in 2025 by the U.S. Federal Reserve, alongside indications that further easing may continue into 2026. Short-term government bond yields fell, while longer-term yields rose, resulting in a steeper yield curve. In Canada, amid elevated trade tensions with the United States, the Bank of Canada reduced its overnight rate to 2.25%. As for inflation expectations, they edged higher as prior-year base effects faded.
Credit spreads remained tight, limiting compensation for incremental credit risk. Although corporate bonds benefited from spread tightening, this environment reinforced a cautious and selective approach to credit exposure across Pembroke’s fixed income strategies.
The Pembroke Corporate Bond Strategy declined marginally on an absolute basis, underperforming its benchmark. Relative performance was hindered by an allocation to federal government bonds and an underweight position in corporate credit during a period of tightening spreads. Positive contributors included select limited recourse capital notes and well-structured high-yield positions, as well as shorter-than-benchmark duration, which proved beneficial as the yield curve steepened.
The strategy remains conservatively positioned, with a substantial allocation to high-quality securities and government-backed instruments. Elevated liquidity provides the flexibility to fund future credit opportunities as valuations evolve.
The Pembroke Canadian Bond Strategy was effectively flat, also marginally underperforming its benchmark. Performance benefited from a relative underweighting of government securities, as corporate bonds outperformed amid spread tightening. Select high-quality structured credit instruments were notable contributors, and a duration that was modestly shorter than the benchmark supported relative results during the steepening of the yield curve.
Given historically tight corporate spreads, the strategy continues to emphasize capital preservation and liquidity, maintaining a conservative stance. High-quality government and government-backed securities remain core holdings, supporting risk management and flexibility.
7. PORTFOLIO POSITIONING
Overall, the behaviour of the portfolios was broadly consistent with expectations, given the market conditions during the quarter. A neutral positioning proved appropriate in the context of easing monetary policy and steady earnings growth. However, some cyclical holdings underperformed to a greater extent than anticipated, which highlights the unpredictability of short-term market movements.
These outcomes reinforce our emphasis on maintaining discipline and avoiding reactive portfolio changes based on short-term factors. Periodic divergence between expectations and outcomes is inevitable, and we continue to focus on evaluating whether the underlying investment thesis for each stock remains intact in the context of long-term objectives.
8. STRATEGY ROLES WITHIN A PORTFOLIO
Each Pembroke strategy is designed to fulfil a specific function within a diversified portfolio.
Canadian equity strategies can be used as a core holding in a portfolio, providing exposure to Canadian companies and their domestic and international economic growth as well as, in many cases, to a reliable dividend income stream. These strategies aim to deliver steady, long-term returns by investing in high-quality companies.
U.S. equity strategies expand the opportunity set by providing access to the world’s largest equity market. These strategies focus on high-quality growth companies and add diversification through exposure to sectors and business models that are less common in Canada.
International and global equity strategies further enhance diversification by investing across Europe, Asia and other regions. They provide exposure to varied economic cycles and secular growth trends, helping to reduce reliance on any single market.
Balanced strategies can also be used as a core holding in a portfolio. They aim to capture the range of market capitalization and to achieve diversification, providing a steadier investment experience.
Fixed income strategies can be used either to balance an equity portfolio or to generate income.
Together, these strategies are designed to complement one another. They are all managed using a consistent, long-term approach with the aim of delivering disciplined, risk-aware growth that is aligned with investors’ financial goals.
