Q2 2021 | Caldwell North American Fund (formerly Caldwell Balanced Fund) Commentary

Market Commentary

North American markets continued to move higher in the second quarter of 2021 (“Q2”) on an improving economic backdrop, solid first quarter (“Q1”) earnings results and ongoing government stimulus.

The Technology, Real Estate, and Energy sectors performed strongly in both Canada and the U.S. Energy prices continued to move higher, driving share prices of energy producers along with them. Energy prices are benefiting from favourable supply/demand dynamics as economies open up and supply is contained after years of constrained capital investment into the industry. Real Estate companies were some of the worst performers in 2020 as stay-at-home orders threatened rental income. However, these stocks have performed strongly as economies began opening and business activity started to recover. Technology companies, which were some of the strongest performers in 2020, continued their strong performance in Q1. Many of these companies have created strong, network-effect driven competitive barriers around their businesses and benefit from a more technology-enabled world. Individuals have also used some of their government stimulus checks to invest in the  stock market. Given Technology companies are some of the best-known brands in the world, they are favoured investment ideas for many individual investors.

In Canada, the Healthcare sector was a notable underperformer as investors sold shares of cannabis stocks that were bid up during the meme stock frenzy in Q1. Consumer Staples stocks were also relative underperformers in both Canada and the U.S. as companies that benefited from pantry loading during the pandemic now face tough year-over-year earnings comparisons.

Portfolio Commentary

Top performers in Q2 included Tricon Residential (“TCN”), Motorola Solutions (“MSI”) and KKR & Co. (“KKR”)1.

A robust U.S. housing market is creating a highly favourable rental pricing environment for TCN and an influx of investor capital into the single family rental space should drive strong growth in the company’s asset management business.

MSI’s business is recovering with the economic reopening, particularly as the sales cycle gets back to normal. The latest U.S. stimulus plan, which includes roughly $350 billion to State and Local governments, provides a multi-year growth tailwind as governments embark on a product refresh cycle.

Lastly, KKR benefited from higher fee income and strong gains on balance sheet investments. A recent investor day also laid out a reasonable road map for significantly higher than expected fee/earnings growth over the next 3-5 years, giving investors greater confidence in the company’s outlook.

Looking Forward

The current narrative within the market remains optimistic as investors look through ongoing pandemic-related challenges to a 'back to normal' environment where pent up demand and stimulus money are unleashed. The likelihood that this current narrative remains uninterrupted through the remainder of the year is low, in our view. As such, we expect markets to remain volatile. We will continue to manage portfolios based on our investment principles of protecting and growing our investors' capital through discounted valuations, strong balance sheets, good management teams and attractive business environments.

1Current investments: first purchased: TCN 6/8/2016, MSI 12/20/2019; first acquired: KKR 7/2/2018 (formerly held Hyperion).

All data is as of June 30, 2021 sourced from Capital IQ, unless otherwise specified.

Effective 11/16/2020, the fund no longer allocates fixed income as part of the investment strategy. Refer to the amendment #1 to the Simplified Prospectus dated 10/13/2020.

The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Rates of returns, unless otherwise indicated, are the historical annual compounded returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.

Publication date: July 15, 2021.

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