Balanced Strategies


The main reasons to invest in diversified portfolios of stocks, bonds and real assets over the long term is that when one asset declines, an asset with less than perfect correlation may decline less, and an asset with a negative correlation may even rise. However, 2022 was a period when most publicly traded asset classes declined, the exceptions being many publicly traded energy and primary agricultural commodities.

That is not to say that diversification did not help balanced fund investors during the period, but rather to say that despite the diversification, absolute returns in Pembroke’s Global Balanced Fund and Canadian Balanced Fund were negative.

Global Balanced Fund

The Pembroke Global Balanced Fund is a fund of funds that 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 Fund has a custom benchmark, with the following three allocations: 30% FTSE Canadian Universe Bond Index, 45% MSCI All-Country World Index, and 25% S&P TSX Composite Index.

The objective of the Fund is to generate long-term capital appreciation and income by maintaining diversified exposure to global equities and bonds, with flexibility to invest in publicly traded real assets like gold. The Fund is diversified by asset classes, regions, styles (value versus growth, or large capitalization equity versus small capitalization equity), managers and approaches (active versus passive).

Over the twelve months ending September 30, 2022, the Fund reported a negative absolute return. Relative returns against the custom benchmark, which also declined, were negative despite comparatively strong performance from the fixed income holdings and gold bullion holding – the iShares Gold Bullion ETF (“CGL.C”).

The primary detractor to the Global Balanced Fund’s performance during this period was the Fund’s tilt toward growth strategies. Growth stock prices are sensitive to rising interest rates, as the present value of future earnings streams is reduced by rising yields. The passive exchange-traded fund (ETF) equity strategies, with broad index exposure including value stocks, generally outperformed the Fund’s active equity strategies, which are tilted toward growth stocks.

The Fund’s international growth equities declined, with notable weakness in European equities against the backdrop of the war in Ukraine, rising energy and food prices, and political uncertainty in the UK. Scandinavian equities were particularly impacted given their proximity to Russia and the decisions by Sweden and Finland to join NATO. US equities were also affected, with notable declines in growth equities in the face of rising interest rates. Canadian equities were comparatively resilient during the past year, due to a relatively high proportion of energy and materials stocks, which benefitted from demand scarcity and pricing power.

As US equities still account for around 60% of the world’s market capitalization and, as go US equities, so go global equity indices. The Pembroke Global Balanced Fund has a relatively high exposure to Canadian equities (over 35% of the equity allocation) and a relatively low exposure to US equities (about 35% of the equity portfolio). This geographic exposure, with a home-country bias to Canada, benefitted the Pembroke Global Balanced Fund during the period.

The Fund’s bond holdings have been comparatively resilient over the past twelve months, as the manager moved to shorter duration and higher-quality liquid credits. The manager shortened duration by moving into floating rate notes. At the end of September 2022, the Fund’s bond strategies accounted for about 23% of the Global Balanced Fund holdings. The gold bullion ETF accounted for about 4.5%.

The Fund remains diversified by region, by asset class and by sector. While the outlook for the global economy includes increasing concerns about a recession and persistent inflation, equity valuations have come down materially. The Fund’s equity managers are actively searching for opportunities. Similarly, the Fund’s credit manager is remaining defensive and is building liquidity in anticipation of future opportunities.

Canadian Balanced Fund

Over the twelve months ended September 30, 2022, the Pembroke Canadian Balanced Fund declined and underperformed its custom benchmark, which also declined (benchmark comprised of 60% S&P TSX Composite Index, 35% FTSE Canada Universe Bond Index, and 5% in the FTSE TMX 91-Day Canadian Treasury Bill Total Return Index). The equity portion of the portfolio, represented by the holdings of the Pembroke Dividend Growth Fund (see the article Canadian Equity Strategies), underperformed the S&P TSX Composite Index during the period due, in part, to the allocation effect of an underweight position in energy and an overweight position in information technology.

These negative allocation effects were only partially offset by positive stock selection. By sector, positive stock selection was recorded over the past year in information technology, industrials, utilities and energy. The effect of stock selection during the period was negative in communication services, consumer discretionary and staples, materials and real estate. During the period, two of the Fund’s holdings were acquired in takeovers.

The fixed income portion of the Fund, represented by the Pembroke Canadian Bond Fund (see the article Fixed Income Strategies), declined in absolute terms during the twelve-month period, as mounting inflation expectations drove interest rates higher, and bond prices lower.

Income in the Canadian Balanced Fund is generated from a combination of dividends and interest. The equity portion of the Fund has a current annualized gross yield of 3.9%, while the fixed income segment of the Fund is primarily invested in securities rated “A+” that, on average, have a collective yield to maturity of 4.7% and an adjusted portfolio duration of 5.2 years. The fixed income portion of the Fund is maintaining its defensive positioning and increased weight in high-quality liquid bonds.


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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.