Third Quarter 2023 Commentary | Caldwell North American Fund Annual Commentary

Market Commentary

For the third quarter of 2023, the Caldwell North American Fund (“CNA” or “Fund”) declined -1.8% versus a decline of -1.7% for the Fund’s benchmark, which comprises an equal blend of the S&P 500 Total Return Index and the S&P/TSX Composite Total Return Index. From a sector standpoint, Energy, Healthcare, and Communication Services were relative outperformers, whereas, Utilities, Real Estate, and Information Technology underperformed.

Portfolio Commentary

Top contributors to the Fund’s performance in the third quarter of 2023 were Suncor Energy (“SU”), Canadian Natural Resources (“CNQ”), and Jacobs Solutions (“J”). SU rerated higher as it was well positioned to benefit from the constructive move in crude oil prices that occurred during the third quarter of this year, which prompted investors to accumulate exposure to energy companies that were set to benefit. CNQ posted a strong performance as it also was a beneficiary of the constructive move in crude oil prices that occurred during the third quarter, as the company is now expected to generate one of the strongest free cash flow profiles in its peer group. This is a result of CNQ possessing the lowest breakeven oil price amongst its competitors. J’s stock has been surging since the release of its quarterly earnings as the company demonstrated accelerating revenue growth in addition to expanding its operating profit margin. Furthermore, the company revealed that the gross margin in their backlog continued to improve during the third quarter, which provided investors with greater visibility supporting the company’s outlook for this year and beyond.

During the third quarter of 2023, the Fund initiated positions in Jacobs Solutions (“J”) and Stantec (“STN”). J is a leading engineering, design, and consulting company serving both public and private clients. The company is positioned to derive significant benefits from recently passed stimulus bills, as the funding is starting to flow through the system and is expected to accelerate over the next year. STN provides consulting, engineering, and design services to private and public clients in the infrastructure, commercial, environmental, and energy end markets. The company is seeing a strong demand environment with organic growth and backlog increases across all geographies, which the management believes should be sustained over the next few years.

Looking Forward

Inflation, interest rates, and the risk of recession continue to be the most prevalent themes in 2023. Macroeconomic forces are still the most dominant factors driving the markets. If inflation moderates to a manageable level, central banks may be able to orchestrate a soft landing for the economy, avoiding a typical recession. However, if inflation persists at undesirable levels, a hard landing may be necessary where interest rates strain consumer spending, investments, and corporate profits, ultimately resulting in a classic recession with increased unemployment. While economic uncertainty is a predominant risk in the markets today, we remind investors that one of the Fund’s investment principles is to protect capital by seeking reasonable valuations. To that end, we think the Fund’s value tilt positions it well for the uncertain environment. History has taught us that crisis creates new opportunities and for those investors with multi-year investment horizons, 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.

Series F, total return CAD terms
Standard performance as at September 30, 2023:
Caldwell North American Fund Series F: 1 Year: 13.0%, 3 year: 10.9%, 5 year: 6.4%, Since Inception (August 8, 2014): 6.2%.
50% S&P/TSX Composite Total Return Index and 50% S&P500 Total Return Index: 1 Year: 16.5%, 3 year: 13.1%, 5 year: 10.1%, Since Inception (August 8, 2014): 10.4%.
All data is as of September 30, 2023 sourced from Capital IQ, unless otherwise specified.
First purchased: SU 12/3/2013, CNQ 6/27/2022, J 7/27/2023.
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: October 19, 2023

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