Balanced Strategies


July 2023


Both global equity and fixed income markets declined significantly in 2022, as central banks across the world raised interest rates to tame soaring inflation. As core inflation rates peaked, expectations of future interest rate hikes softened, leading to a bottoming of global stocks and bonds in October of 2022.

The rebound from October’s lows was initially moderated by increasing uncertainty around future inflation, interest rate increases or decreases, and trouble in the banking industry. However, global equities rallied in the second quarter of 2023, driven mostly by seven U.S. mega cap stocks who lead the charge. Overall, Pembroke maintains a balanced approach to asset allocation, with the goal of reducing volatility through effective diversification.

Global Balanced Strategy

Pembroke’s global balanced strategy invests primarily in Pembroke-managed active equity funds, externally managed active equity and fixed income funds, and externally managed passive funds (exchange-traded funds [ETFs]). The strategy has a custom-blended 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 generate long-term capital appreciation and income by maintaining diversified exposure to global equities and bonds. The strategy also has the flexibility to invest in publicly traded real assets, such as gold. It is diversified by asset classes, regions, sectors, styles (value versus growth, or large capitalization equity versus small capitalization equity), managers and approaches (active versus passive).

The strategy generated positive absolute returns in the second quarter of 2023, but trailed the benchmark, which was up by slightly more. Over the period, the strategy experienced absolute positive contribution from equities and fixed income, while the gold allocation was a detractor. The underperformance relative to the benchmark was driven by the U.S. and International equity allocations and is due to the strength of seven mega cap stocks contributing to more than two thirds of the returns in the MSCI ACWI portion of the benchmark, as well as a decline from the gold bullion holding (iShares Gold Bullion ETF [CGL.C]). The negative relative results were partially offset by the strategy’s fixed income and Canadian equity allocations, which outperformed their respective component in the benchmark over the period.

The strategy’s bond holdings outperformed the benchmark in the second quarter, due to the manager maintaining a shorter average duration than the index during a period of rising interest rates. At the end of June 2023, the strategy’s bond allocations accounted for about 23.3% of the holdings. As for cash and the gold bullion ETF, they respectively accounted for about 2.8% and 4.2% of the holdings.

Over the course of the twelve-month period ending June 30, 2023, the strategy rebounded from its lows to end the period significantly higher and slightly ahead of its benchmark, which was up over the same period. All of the strategy’s asset classes and underlying funds contributed to absolute returns. On a relative basis, Canadian and international equities as well as fixed income outperformed while U.S. equities underperformed their respective component in the benchmark. The gold allocation’s performance was in the middle of the pack, outperforming fixed income, but underperforming the equity components of the benchmark.

The strategy remains diversified by asset classes, regions, sectors and styles. Its equity and bond managers continue to actively search for new opportunities.

Canadian Balanced Strategy

Pembroke’s Canadian balanced strategy posted strong returns in the past twelve months. The equity portion of the portfolio, represented by the holdings of the Pembroke Dividend Growth Fund (see the article on the Canadian strategies), showed strength during the period, rallying off bear market lows as investors looked through an uncertain economic environment to longer-term prospects in an eventual recovery. As for the fixed income portion of the strategy, represented by the Pembroke Canadian Bond Fund (see the article on the fixed income strategies), it was in modestly positive territory for the year, as returns from interest income was partially offset by capital losses driven by rising interest rates.

Income in the strategy is generated from a combination of dividends and interest. The equity portion has a current annualized gross yield of 3.5%, while the fixed income segment is primarily invested in securities rated “A+” to “AAA” that, on average, have a collective yield to maturity of 4.9% and an adjusted duration of 5.8 years. Minor changes to the asset mix of Pembroke’s balanced Canadian mandates were made through the year, with approximately 27% of the portfolio invested in fixed-income securities on June 30, 2023.


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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.