April 2025
Equity market performance was mixed in the first quarter of 2025. Overall, small-cap stocks underperformed large-cap stocks in most regions, reflecting their greater sensitivity to macroeconomic volatility.
The TSX posted modest gains, supported by strength in energy and materials, while U.S. equity markets declined slightly, weighed down by macroeconomic headwinds and escalating concerns about the U.S. tariffs under the Trump Administration. Meanwhile, international markets posted positive returns, led by Europe and some emerging markets.
Over the first three months of the year, fixed-income markets delivered modest positive returns as bond yields declined slightly. Weaker economic data and rising expectations of central bank rate cuts later in the year contributed to the fall in yields. Finally, gold prices rose sharply, benefiting from safe-haven flows, a weaker U.S. dollar, and increased investor demand amid global uncertainty.
Pembroke maintains a diversified and disciplined asset allocation approach, with an emphasis on small-cap growth stocks relative to the benchmarks. While short-term volatility continues, Pembroke remains focused on fundamentals and long-term value creation.
CANADIAN BALANCED STRATEGY
Pembroke’s Canadian Balanced Strategy delivered a slightly negative return in the first quarter as the sell-off in the equity portion of the portfolio detracted from overall returns. The bond portion of the portfolio posted modest gains, driven by a declining interest rate environment and interest income.
While recent returns have been more heavily weighted towards equity investments, the fixed income allocation is intended to provide ballast in uncertain times. The portfolio’s balanced and diversified asset allocation approach reduces volatility for investors with more conservative risk tolerance profiles or short-term liquidity needs.
GLOBAL BALANCED STRATEGY
Pembroke’s Global Balanced Strategy invests primarily in Pembroke-managed active equity funds, externally managed active equity and bond funds, and externally managed passive funds (Exchange Traded Funds or ETFs). The strategy has a bespoke benchmark with the following three allocations: 30% FTSE Canadian Universe Bond Index, 45% MSCI All Country World Index (ACWI), and 25% S&P/TSX Composite Index.
The objective of the strategy is to provide long-term capital appreciation and income through a diversified exposure to global equities and bonds. The strategy also has the flexibility to invest in publicly traded real assets, such as gold.
The portfolio was down in the first quarter of 2025, underperforming its benchmark, which was slightly up. Over the period, the strategy saw absolute positive returns from international equities, fixed income assets and the gold allocation, while U.S. and Canadian equities declined.
On a relative basis, the strategy’s underperformance in the first quarter was driven by the small-cap growth strategies. However, this was partially offset by the outperformance of the Pembroke Canadian All Cap Fund and the gold allocation.
The strategy’s bond holdings underperformed the benchmark in the first quarter, as the bond manager maintained a shorter average duration than the index during a period of falling interest rates. At the end of March, the strategy’s bond allocation represented approximately xx.x% of the portfolio. The cash and gold bullion ETF allocations were approximately x.x% and x.x% of the portfolio, respectively.
Other Articles Of Interest
Disclaimer
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.
