January 2025
The outcome of the US election played an important role in driving equity markets higher in the fourth quarter, as the incoming Trump administration is seen as more business-friendly than the Biden administration. However, concerns about tariffs and potential trade disputes weighed on markets and dampened some of the optimism heading into the end of the year.
Against this backdrop, Canadian fixed income markets posted slightly negative returns in the final quarter of 2024. Investors priced in the potential inflationary impact of global trade tariffs and the uneven pace of progress in reducing price pressures in the economy.
On a more positive note, the rapid advancement and widespread adoption of artificial intelligence continue to generate excitement, spurring growth and driving transformative change across industries.
Overall, Pembroke’s strategies maintain a carefully balanced approach to asset allocation, with the aim of reducing volatility through strategic diversification.
CANADIAN BALANCED STRATEGY
Pembroke’s Canadian balanced strategy delivered attractive returns in the fourth quarter, led by strong gains from the equity portion of the portfolio. These gains were complemented by capital appreciation and income from fixed-income investments.
While returns in recent years have been more heavily weighted towards equity investments, a declining interest rate environment could allow bond investments to contribute more in the future.
The portfolio’s balanced and diversified asset allocation approach reduces volatility for investors with more conservative risk tolerance profiles or short-term liquidity needs.
GLOBAL BALANCED STRATEGY
Pembroke’s Global Balanced Strategy invests primarily in Pembroke-managed active equity funds, externally managed active equity and bond funds, as well as externally managed passive funds (Exchange Traded Funds or ETFs). The strategy has a bespoke benchmark with the following allocations: 30% FTSE Canadian Universe Bond Index, 45% MSCI All Country World Index (ACWI) and 25% S&P/TSX Composite Index.
The objective of the portfolio is to provide long-term capital appreciation and income through diversified exposure to global equities and bonds. The strategy also has the flexibility to invest in publicly traded real assets, such as gold.
Over the year, the portfolio delivered impressive absolute returns, marking two consecutive years of double-digit growth. However, performance was slightly below that of its benchmark, which posted marginally higher gains over the same period. In the more recent fourth quarter, the strategy delivered strong returns and modestly outperformed its benchmark.
In the final three months of the year, the portfolio saw absolute positive returns from all underlying funds and the gold allocation. The strategy also broadly outperformed its benchmark, although this was in part offset by the US equity allocation. This allocation was the strongest absolute performer in the strategy, but slightly underperformed the benchmark’s US allocation due to its underweight to the Magnificent Seven.
The strategy’s bond holdings outperformed their benchmark in the fourth quarter, as the manager maintained a shorter average duration than the index during a period of rebounding interest rates. At the end of December 2024, the strategy’s bond allocation represented approximately xx. x% of the portfolio. The cash and gold bullion ETF allocations were approximately x.x% and x.x% of the portfolio, respectively.
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Disclaimer
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.
