Q4 2020 | Caldwell North American Fund (formerly Caldwell Balanced Fund) Commentary

Market Commentary

2020 was a year of extraordinary uncertainty. The way the entire world operated changed almost instantaneously with the onset of the COVID-19 pandemic. The fast and fierce drop in markets seemed rational given the significant disruption to the world order, and uncertainty/fear of what the future might look like. For many investors, concern over the value of their portfolios took a backseat to concerns over their health and safety and that of their loved ones.

What may not seem as rational is the market's behavior subsequent to this initial sell off. Despite spikes in unemployment and severe declines in economic activity, markets gradually climbed their way higher throughout the year, driven by unprecedented levels of stimulus by central banks and governments. By year end, both the U.S. and Canadian markets were higher than when they started the year.

There were many themes to 2020. One of the main ones was that COVID-19 accelerated many trends that were already in place. To that end, Technology was the best performing sector in both Canada and the U.S. Performance of consumer stocks saw a wide range of outcomes depending on whether the companies were hurt by or benefited from the dramatic shift in consumer spending patterns. Those that helped make 'shelter-in-place' orders more tolerable for individuals saw strong performance while those tied to experiences outside of the home suffered. REITs, often thought of as safe-haven investments, also saw significant declines as remote working took hold and shopping/restaurants/services saw significant declines in traffic. Demand for energy dropped with lower economic activity at the same time governments globally increased commitments to clean energy. As such, Energy was the worst performing sector in both countries.  The Financials sector also performed poorly on fears of credit losses (i.e. the risk that loans would go unpaid).

Another notable theme in 2020 was the apparent shift in investor sentiment. Heading into the year, sentiment was cautious on economically sensitive companies given a multi-year bull market and fears of a looming recession. Once it became apparent that the 2nd quarter would mark a bottom in corporate earnings, and investors saw what a worst-case-scenario looked like, money started flowing into these economically sensitive companies. This shift accelerated in early November with the news of an effective vaccine.

Portfolio Commentary

Top performers in 2020 were IPG Photonics (“IPGP”), Ansys (“ANSS”), and KKR (“KKR”)*. IPGP is a leader in fiber laser technology used in manufacturing processes. It benefited from the aforementioned shift in investor sentiment towards economically sensitive companies. ANSS is the global leader in engineering simulation software. The importance of its software was validated by the signing of two of their largest deals in company history, despite the pandemic. Lastly, KKR manages over $200 billion (USD) in private equity and alternative assets. It was able to capitalize on market dislocations and leverage investments made in prior years. Leading detractors from portfolio performance were Boston Scientific (“BSX”, driven by a decline in non-COVID-19 hospital procedures), Tyson Foods (“TSN”, driven by COVID-19 disruptions to plant operations); and Suncor (“SU”, driven by the above-noted factors on Energy)*.

Looking Forward

Interest rates remain the determining factor in the pricing of all asset classes. While the printing of money should in theory lead to higher inflation - and has, in some cases, with commodity and transportation prices up meaningfully from their lows - the path and timing of inflation remains uncertain as powerful anti-inflation forces (demographics and technology) must be overcome. As well, the medium term effects of COVID-19 and unprecedented government stimulus are still uncertain. As such, we expect markets to remain volatile and therefore stress the importance of having conversations with Investment Advisors around cash planning. However, 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.

*Current investments, first purchased: IPGP 9/26/2018, ANSS 9/12/2018, KKR 7/2/2018, BSX 7/15/2020, TSN 9/29/2017, SU 12/31/2015.

Performance shown is for Q4 only. All data is as of December 31, 2020 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: January 18, 2021.



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