Canadian Equity Strategies


Canadian Growth Equity Strategy – Q1 Portfolio Commentary

Pembroke’s Canadian equity portfolios gained during the first quarter of 2021, building on the momentum enjoyed in 2020 following the market trough at the onset of the COVID-19 pandemic. Optimism regarding the effectiveness of worldwide vaccination campaigns buoyed market sentiment though the emergence of a third COVID wave has increased uncertainty about the eventual path to normalization. Market participants also grappled with the implications of coordinated monetary and fiscal policies aimed to stimulate economic activity. Longer-term bond yields increased with heightened inflation expectations, and value stocks outperformed growth stocks. 

The performance of Pembroke’s Canadian equity mandates was strong on both an absolute and a relative basis in the first quarter, with returns outpacing both the S&P/TSX Composite and S&P/TSX Completion indices. From an industry group perspective, the portfolio benefited from gains generated by consumer discretionary, financial, industrial, materials, real estate, and energy holdings. Conversely, investments in the technology sector pulled back in the first quarter after delivering strong performance in 2020. 

Two stocks that made positive contributions during the quarter included: 

Shares in Airboss of America (“BOS”), a developer, manufacturer, and marketer of rubber-based products serving a diverse set of end markets, rallied in the first quarter as the company delivered interim results that exceed market expectations and announced sizable contract wins that improved its outlook for 2021 and 2022. With its manufacturing capacity, capability, and proven record of completing mission-critical contracts, the company should be well positioned to replenish depleted global stocks of gloves, gas masks, and other personal protective equipment. 

Shares in Pollard Banknote (“PBL”), a leading supplier of scratch tickets and iLottery services to North American lotteries, gained in the first quarter as investors recognized the merits of the company’s iLottery division. The value of this operation had not been fully appreciated by the market due to complex accounting standards and sporadic disclosures by management. This changed in 4Q20 when NeoGames, its joint venture partner in the businessfiled IPO documents that highlighted its strong sales growth and attractive profitabilityMoreover, an American investor with a credible track record in the microcap space endorsed the company’s iLottery strategy and potential through its proprietary research; this further catalyzed the stock and broadened its audience. We believe the company has a long runway for growth as State lotteries are increasingly adopting digital solutions to bolster their revenues.  

Two stocks that made negative contributions during the quarter included: 

Shares in Kinaxis (“KXS”) declined after the company reported disappointing guidance for 2021. KXS provides sophisticated supply chain management software to global corporations. The pandemic and trade wars of the past few years have highlighted the importance of real-time visibility into supply chain  vulnerabilities.  Kinaxis’ software, however, involves a complex sale and implementation process, and the pandemic forced delays. The company’s products remain leading edge and the long-term market opportunity continues to grow.  

Shares in Tecsys (“TCS”), a provider of supply chain software, services, and solutions for the healthcare, retail, and complex distribution sectors, declined in the first quarter of 2021 after gaining in 2020. Fundamentally, the company continues to perform well, with most recent quarterly results highlighting revenue growth, healthy bookings activity, and backlog visibility. While the COVID-19 pandemic has disrupted sales cycles with some of Tecsys’ customers, it has also highlighted the importance of supply chain infrastructure and the deficiencies of antiquated legacy systems. Tecsys is emerging as a leader in efforts to modernize these critical systems. 


The Pembroke Dividend Growth Fund is a Pooled Fund. This is a prospectus-exempt product that is only available to investors who meet the definition of an “accredited investor” under securities legislation. 


The Pembroke Dividend Growth Fund posted strong returns in the first quarter of 2021, continuing the upswing since the market trough in April 2020 during the early stages of the COVID-19 outbreak. Vaccine rollout campaigns have increased investor confidence regarding the timeline to a “new normal”, though the emergence of variant virus strains and a third wave of infections has clouded near-term visibility. Bond yields also perked up in the first quarter, as aggressive monetary and fiscal efforts to counteract the pandemic made investors wary of their potential inflationary effects. 

On a relative performance basis, the fund outperformed the S&P/TSX Composite Index but lagged the S&P/TSX Dividend Aristocrats Index during the quarter. All industry groups represented in the portfolio produced positive results during the period, with holdings in the financial, consumer discretionary, real estate, industrial, and technology sectors representing the most prominent contributors to the fund’s gains. 

Two stocks that made positive contributions during the quarter: 

Shares of Information Services Corporation (“ISV”), a leading provider of registry and information management services for public data and records, performed well in the first quarter as interim financial results demonstrated accelerating revenue trends and expanding margins. ISV has formidable competitive moats in its land, personal, and corporate registry operations, and management has been harvesting free cash flow from these businesses and redeploying the capital into complementary strategic acquisitions.  

Shares of Stantec (“STN”), a professional services company offering its engineering, design, and management capabilities to infrastructure, building, water, environmental, and resource projects, recorded gains in the first quarter as to the company announced strong interim financial results and a positive outlook provided by management. The company is well positioned to benefit from public sector spending on infrastructure and other large-scale projects, as governments worldwide look to stimulate their economies through aggressive fiscal measures. Moreover, the company is gaining recognition from global ESG funds, as it was named one of the most sustainable company in the world and first in North America by Corporate Knights. 

Two stocks that made negative contributions during the quarter included: 

Shares in Calian Group (“CGY”), a provider of technology solutions to the healthcare, learning, cybersecurity, and satellite communications markets, declined in the first quarter after the company issued shares to finance a significant acquisition which was announced in February. While news of the acquisition was well received and the equity offering was fully subscribed, the company’s shares were weak following the equity raise as near-term investor demand for shares was satisfied by the deal.  We remain optimistic about Calian’s prospects to grow its franchise through a combination of organic growth and selective acquisitions. 

Shares in Richards Packaging (“RPI-U”), a distributor of plastic and glass packaging, healthcare, and cosmetic products, declined in the first quarter after enjoying a strong 2020. Management expressed its expectation that some COVID-19 driven demand in sanitization and disinfection end markets would taper in 2021, leading to a modest year-over-year decline in revenues. While COVID-19 tailwinds will inevitably abate for Richards, we believe the company remains well positioned to execute on its longer-term strategy of acquiring quality businesses in the packaging, healthcare, and cosmetics distribution verticals and integrating them onto its platform. The company sports a healthy balance sheet and strong cash flow generation, giving it the financial wherewithal to pursue these initiatives. 

Also, during the quarter Collectors Universe (“CLCT”), a leading provider of third-party authentication and grading services for high-value collectibles such as coins and trading cards, received a bid to acquire the company at $92/share, a significant increase from the $75.25/share offer which was launched in the fourth quarter of 2020. While Pembroke still viewed the offer as inadequate in light of the company’s long-term growth prospects and profitability, a majority of shareholders tendered their shares to the offer, thereby consummating the transaction. Click here to learn more.



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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.