International and Global Equity Strategies


October 2023


Market leadership expanded in the third quarter compared to the concentrated performance observed in the first half of the year. In June, in response to stronger than anticipated economic data, the market recognized that a change in monetary policy from tightening to easing was unlikely in the near future. This led to a consensus that interest rates might persist at elevated levels for an extended period.

The global economy continues on its expansionary trajectory, although at a modest pace. Throughout the year, disinflation has been the dominant theme, and its role in bolstering real incomes and boosting consumer expenditure, especially in developed markets, has become more pronounced.

In the U.S., inflation has hovered between 2% and 2.5% since June. Recently, rising energy prices pushed inflation closer to 3%. Housing remains a significant factor influencing the annual variation in the Consumer Price Index (CPI). However, housing costs are showing a gradual decline on a month-to-month basis. Despite monthly data fluctuations, it is anticipated that U.S. inflation will stay within the 2.5-3% bracket for the rest of the year.

Although being at higher inflationary levels, Europe exhibits parallel trends. Notably, disinflation has led to positive growth in real wages in both regions. This growth has enhanced purchasing power and stimulated consumption, factors that are poised to bolster Gross Domestic Product (GDP) growth and indicate a likely smooth economic deceleration.

Emerging markets, with China at the forefront, have underperformed this year. However, projections suggest a potential surge in earnings in 2024. Despite the economic slowdown in China over the past months, recent macroeconomic indicators imply that the economy might be approaching its lowest point. Positive signs include stability in the purchasing managers’ index (PMI), a surge in retail sales, and a reduction in deflationary forces.

International Growth Strategy

The Pembroke international growth strategy underperformed the MSCI ACWI ex-U.S. Small Cap Index during the year-to-date period. From an attribution perspective, broad stock selection weakness across sectors drove underperformance, especially within industrials and consumer discretionary. However, allocation effects were positive for the year-to-date period, especially the benefit of underweighting within real estate and overweighting within information technology.

Two stocks that made positive contributions to returns of the strategy over the past quarter

Corp Inmobiliaria Vesta SAV de CV (VESTA:BMV) positively impacted performance. Vesta operates as a comprehensive real estate firm specializing in the development and leasing of industrial facilities and distribution centres in Mexico. The company’s proficiency lies in creating and constructing build-to-suit (BTS) and park-to-suit (PTS) projects, along with conventional inventory buildings, serving diverse industries within the manufacturing and logistics sectors. Uniquely among major industrial real estate players, Vesta is organized as a C Corporation, enabling it to retain a larger portion of its funds from operations (FFO) to finance upcoming developments and transactions. In the Mexican context, akin to the U.S., Fibras (similar to REITs) must disburse more than 90% of their earnings. This structure gives Vesta a competitive advantage, allowing it to amass a capital base for future capital expenditures and projects.

Burford Capital (BUR:LSE) is a leading global finance and asset management firm focused on litigation finance. Burford boasts an impressive history of prevailing in 90% of its balance sheet deployments, a testament to its robust case selection process, which is crucial for sustained strong performance. The firm’s share price gained momentum earlier in the year following a favourable ruling by a U.S. judge against Argentina, and for entities financed by Burford Capital. The case involved claims that Argentina neglected to compensate shareholders fairly during the nationalization of the gas and oil company YPF SA in 2012. The share price experienced an additional upsurge in the third quarter subsequent to the U.S. court’s pronouncement regarding damages and interest, with Burford reaping rewards at the higher end of the spectrum of potential prejudgment interest rates.

Two stocks that made negative contributions to returns of the strategy over the past quarter

Ariston (ARIS:BIT) is an Italian-based thermal comfort seller. The company possesses an extensive portfolio of renewable and high-efficiency comfort solutions, including hot water heaters, heating systems/equipment, and burners and components. Ariston functions within a fragmented global market. With a comparatively low manufacturing footprint, distribution stands as a significant barrier to entry, complemented by customer reliance on trustworthy brands. The share price fell following softer second-quarter results, prompted by diminished demand in Italy and reduced visibility into the fourth quarter, leading management to revise its growth guidance downward for the 2023 fiscal year.

Addtech (ADDTB: STO) is a Swedish technical solutions company that is well positioned in high growth industrial areas including Automation, Internet of Things, Clean-Tech and Safety. Addtech runs a highly decentralized business model. Subsidiaries generally have a strong market position in the Nordics with deep end-market knowledge and long-term client relationships. This allows them to become partners to their customers. After strong outperformance for most of 2023, the share price declined in the third quarter. Revenues registered a 4% shortfall relative to consensus expectations, attributed to lower-than-anticipated organic growth, yet management maintained an overall optimistic stance. They noted no universal signals of deceleration and affirmed the strength of their order book.

Global Equity Strategy

Pembroke’s global equity strategy is a diversified strategy with exposure to Canadian, U.S., and international developed and emerging equity markets. The intent of the managers is to maintain diversification by region, by market capitalization size, by managers, and by passive and active strategies. The strategy is benchmarked against a custom index comprised of a 64% weight in the MSCI All Country World Index (ACWI), and a 36% weight in the S&P/TSX Composite Index.

The strategy generated negative absolute returns in the third quarter of 2023 and was behind its custom benchmark, which was down slightly less in the quarter. Over the period, the strategy experienced positive relative contribution from the Guardian Capital Global Equity Fund and the Pembroke Canadian All Cap Fund (see the article on the Canadian strategies). Conversely, the positive relative results were more than offset by the strategy’s other equity allocations, which underperformed the benchmark’s respective component over the period.

During the twelve-month period ending September 30, 2023, the strategy rebounded from its lows to end the period significantly higher, but still slightly behind its benchmark, which was also up in the period. All of the strategy’s geographic equity allocations and underlying funds contributed to absolute returns. On a relative basis, Canadian equities outperformed, while U.S. and international equities underperformed the benchmark’s respective components.

The strategy invests in passive exchange-traded funds to achieve exposure to certain large capitalization liquid equity markets. At the end of the period, it held four equity market ETFs, the iShares Core S&P500 ETF, the iShares S&P/TSX 60 Index ETF, the iShares Core MSCI EAFE ETF, and the iShares Core Emerging Markets ETF.

In total, the strategy’s allocation to passively managed ETFs was approximately 28.5% at the end of September 2023. By region, about 36% of the strategy was allocated to Canada, 34.5% to the U.S., 14% to Europe, 3% to Japan, and 15.5% to other regions. By sector, the strategy’s top exposures include the Financials, Industrials, Information Technology, and Consumer Discretionary sectors.


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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.