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 that despite the diversification, absolute returns 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, sectors, styles (value versus growth, or large capitalization equity versus small capitalization equity), managers and approaches (active versus passive).

The Fund was up in the fourth quarter of 2022, in both absolute terms and relative to its custom benchmark, which was also up. However, over the course of the twelve-month period ending December 31, 2022, the Fund reported a negative absolute return. Relative returns against the custom benchmark, which also declined in the year, were slightly positive due to comparatively better performance from the fixed income holdings and the gold bullion holding (the iShares Gold Bullion ETF [“CGL.C”]).

The primary detractor to the Global Balanced Fund’s performance during the past year was the Fund’s tilt toward growth equity 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 equity strategies, with broad index exposure including value stocks, generally outperformed the Fund’s active equity strategies.

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. As for Canadian equities, they were comparatively resilient during the past year, due to a relatively high proportion of energy and materials stocks, which benefitted from  scarcity and pricing power.

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 leading into the year. The manager shortened duration by moving into floating rate notes. In the fourth quarter of 2022, the manager increased duration back to a neutral stance in two of the Fund’s three bond strategies. At the end of December 2022, the Fund’s bond strategies accounted for about 23% of the Global Balanced Fund holdings. Cash and the gold bullion ETF accounted for about 2.6% and 4.4%, respectively.

Many of the trends seen in the first nine months of the year reversed in the final three months, due to inflation and interest rates showing signs of peaking. This led to positive returns for the Fund, its custom benchmark, and most equity and fixed income markets in the fourth quarter of 2022.

All actively managed equity and bond funds as well as passive ETFs included in the strategy gained in the three-month period ending December 2022. Within the actively managed portion, the Pembroke International Growth Fund and the Guardian Capital Global Equity Fund were the strategy’s strongest performers.

The Fund remains diversified by asset class, region, sector and style. Since the outlook for the global economy includes concerns about a recession and persistent inflation, equity valuations have come down materially. The Fund’s equity and bond managers are therefore actively searching for opportunities.

Canadian Balanced Fund

Pembroke’s Canadian Balanced Fund posted negative absolute 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 equity strategies), posted losses during the period, amidst a broad-based selloff in equity markets. The fixed income portion of the Fund, represented by the Pembroke Canadian Bond Fund (see the article on the fixed income strategies), also suffered losses in the past twelve-month period, as surging inflationary pressures forced interest rates higher and bond prices lower.

Income in the balanced fund is generated from a combination of dividends and interest. The equity portion of the fund has a current annualized gross yield of 3.5%, 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 4.6% and an adjusted portfolio duration of 6.1 years. Minor changes to the asset mix of Pembroke’s balanced mandates were made through the year, with approximately 27% of the portfolio invested in fixed-income securities at December 31, 2022.

Global Equity Pooled Fund

The Pembroke Global Equity Fund is a Pooled Fund. This is a prospectus-exempt product that is only available to investors who meet the definition of an “accredited investor” under securities legislation.

The Pembroke Global Equity Pooled Fund is a diversified global equity strategy with exposure to Canadian, US 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.

Over the course of 2022, the strategy reported a negative absolute return and a negative relative return compared with its custom benchmark, which also declined. Global equity performance was negative overall, with very few exceptions.

Against a backdrop of widespread negative absolute returns, the performance of the Canadian equity allocation was relatively strong. As for the passive exchange-traded fund (ETF) equity strategies, they generally outperformed the fund’s active equity strategies, which are oriented toward growth. Lastly, the fund’s international equity strategy turned in the weakest performance, with northern European equities impacted by the war in Ukraine and political instability in the UK.

The Fund was up in the fourth quarter of 2022, ahead of its custom benchmark. During this period, many of the trends seen in the first nine months of the year reversed due to inflation and interest rates showing signs of peaking, leading to positive returns for the Fund, its custom benchmark, and most equity markets.

All actively managed funds as well as passive ETFs in the strategy gained in the three-month period ending December 2022. Within the actively managed portion, the Pembroke International Growth Fund and the Guardian Capital Global Equity Fund were the strategy’s strongest performers.

The Pembroke Global Equity Pooled Fund invests in passive exchange-traded funds to achieve exposure to certain large capitalization liquid equity markets. At the end of the period, the Fund 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 Fund’s allocation to passively managed ETFs was approximately 28% at the end of December 2022. In addition to the iShares S&P TSX 60 Index ETF, the Pembroke Global Equity Pooled Fund also achieves Canadian large capitalization exposure through its holding in the Pembroke Canadian All Cap Pooled Fund (see the article Canadian Equity Strategies).

By region, at the end of December 2022, about 37% of the Fund was allocated to Canada, about 35% to the US, nearly 12% to Europe, over 2% to Japan, and 14% to other regions. By sector, the Fund’s top exposures include the industrials, information technology, financials 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.