Balanced Strategies

July 2025

 

In the second quarter of 2025, equity markets rebounded strongly, recovering from the sell-off triggered in early April by President Trump’s sweeping tariff announcement on “Liberation Day.”

In Canada, the TSX posted strong gains, supported by strength across all sectors. Meanwhile, the U.S. equity markets reached new all-time highs by the end of the quarter, driven by robust earnings and a rotation into cyclical sectors. As for the international equities, they outperformed U.S. markets, bolstered by a weaker U.S. dollar and increased investor diversification.

Fixed income markets experienced modest losses amid volatility, as yields rebounded from previous lows and investors moved back into equities. Additionally, gold prices traded within a relatively narrow range during the second quarter, consolidating following sharp gains earlier in the year.

Pembroke maintains a diversified and disciplined asset allocation strategy. While short-term volatility persists, we remain focused on company fundamentals and long-term value creation.

CANADIAN BALANCED STRATEGY

Pembroke’s Canadian balanced strategy recovered from a turbulent first quarter, delivering solid absolute returns. The positive performance was driven by the equity portion of the portfolio, which recovered from the decline experienced in the first quarter. However, the fixed income allocation of the portfolio suffered setbacks in the second quarter, as rising interest rates, driven by mounting inflationary expectations, put pressure on performance.

Although recent returns have favoured equity investments more heavily, the fixed income allocation is intended to provide stability in uncertain times. The balanced and diversified asset allocation of the portfolio reduces volatility for investors with more conservative risk tolerance profiles or shorter-term liquidity needs.

GLOBAL BALANCED STRATEGY

Pembroke’s global balanced strategy primarily invests in Pembroke-managed active equity funds, externally managed active equity and fixed income funds, and passive exchange-traded funds (ETFs). The portfolio has a custom benchmark comprising the following allocations: 30% FTSE Canadian Universe Bond Index, 45% MSCI All Country World Index (ACWI), and 25% S&P/TSX Composite Index.

The strategy aims to generate long-term capital growth and income by maintaining a diversified portfolio of global equities and bonds. It has the flexibility to invest in publicly traded real assets, such as gold.

In the second quarter, the portfolio delivered positive returns and outperformed its benchmark, which also increased. During the period, Canadian, U.S., and international equities, as well as fixed income, made positive contributions to absolute returns, while the gold allocation remained stable.

On a relative basis, the strategy’s outperformance in the quarter was driven by the Canadian equity and fixed income strategies. However, this was partially offset by underperformance from the U.S. and international equity allocations.

The strategy’s bond holdings outperformed their benchmark in the quarter, as the bond manager maintained a shorter average duration than the index during a period of rising interest rates. At the end of June, the bond allocations in the portfolio accounted for approximately 23.0% of the total holdings. Cash and the gold bullion ETF respectively accounted for approximately 1.5% and 4.1% of the holdings.

 

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