Investment Commentary and Outlook


July 2023


Equities continued their march higher in the second quarter of 2023. Despite a mini-banking scare in the U.S., rising rates and ongoing fears of a recession, the equity markets have powered higher over the past six months. Markets, of course, look forward, not backward. In 2022, as interest rates jumped and valuations compressed, a lot of potential bad news was priced into stocks.

Economic Environment

Confounding many market prognosticators, the economic sky has not yet fallen. Employment remains robust, American consumers are still financially healthy after two years of pandemic-driven saving, and innovation, namely artificial intelligence, is driving a wave of investment and hiring. North America and its western allies are also benefiting from onshoring and near shoring, and industrial and technology companies look to reduce their dependence on China.

While the pandemic “hangover” has hurt some companies that are grappling with excess inventory and supply chain challenges, many other companies are benefiting from a return to normal. Certainly, Pembroke is aware that the storm clouds are still present. Higher interest rates may finally bite harder than some expect, driving a recession. Geopolitical instability is also always a risk.

Risks and events that are not known today could still surprise investors. However, the risks and factors that pundits and the media obsess about, such as rising rates, are known and taken into account, and they do not negate all the positive factors that continue to offer investors hope and fundamental support.

Positioning and Strategies

The investment team at Pembroke continues to maintain strict discipline on balance sheets, which should provide clients with comfort that the firm’s holdings are well positioned to weather unexpected headwinds. Overall, Pembroke’s strategies have fared well in the current environment. The portfolios have benefited from exposure to technology stocks, growth industrials and North American housing, which has proven more resilient than many expected.

In the U.S., it is worth noting that large-cap indices have generally performed better than their small-cap and mid-cap brethren, but that performance has been driven by a narrow group of stocks. In Canada, the firm’s small-cap and mid-cap growth strategy has modestly underperformed the major market index in the first half of the year, while the all-capitalization and dividend growth strategies have both outperformed.


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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.