Fourth Quarter 2023 Commentary | Caldwell North American Fund Annual Commentary

Market Commentary

For the fourth quarter of 2023, the Caldwell North American Fund (“CNA” or “Fund”) gained +7.4% versus a gain of +8.5% 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 Information Technology, Real Estate, and Financials were relative outperformers, whereas, Energy, Materials, and Healthcare underperformed.

Portfolio Commentary

Top contributors to the Fund’s performance in the fourth quarter of 2023 were Microsoft (“MSFT”), Amazon (“AMZN”), and Stantec (“STN”). MSFT rerated higher following strong quarterly earnings that were aided by its dominant position in the global cloud computing market. It is the only company seeing a material growth benefit from Artificial Intelligence (“AI”) () adoption among the three major hyper-scale cloud players. AMZN rerated higher after delivering strong growth and margin improvement in its Amazon Web Services (“AWS”) segment, which is currently the company’s main profit driver. Recently, clients’ focus on cloud cost optimization had been a headwind for AWS, but growth is stabilizing now as customers shift to new AI workload deployments and away from cloud cost optimization. In AMZN’s Retail segment, profit growth was supported by record Prime Day sales, expanded offerings, faster delivery, and lower fulfillment costs. The company’s shift to a more regional fulfilment network is what drove the quicker delivery times, and the shorter delivery distances also drove down expenses. Additionally, faster delivery helped boost customer consideration for making further purchases at AMZN. STN rerated higher as the company raised its guidance above investors’ expectations and demonstrated commitment toward operational excellence by revealing some key operational targets, which should lead to further revenue growth and margin improvement.

During the fourth quarter of 2023, the Fund initiated a position in Cargojet (“CJT”). CJT is the leading provider of time-sensitive air cargo services in Canada, with a network of routes to major cities across North America as well as an overnight service between major cities throughout Canada. The company maintains an unequalled Middle Mile air logistics network, possessing a dominant market position with durable competitive advantages. Recently the industry has been dealing with overcapacity issues as the highly elevated post-pandemic logistics demand was unsustainable in the longer term. However, there is increasing evidence of stabilization in package volumes as well as pricing, which should lead to margin improvement for the company going forward. Furthermore, over the longer term, CJT is attractively positioned to benefit from the secular tailwinds of growth in E-commerce.

Looking Forward

Inflation, interest rates, and the risk of recession continue to be the most prevalent themes in 2024. Macroeconomic forces are still the most dominant factors driving the markets. If inflation remains at a manageable level, central banks may be able to orchestrate a soft landing for the economy, avoiding a typical recession. However, if inflation elevates to undesirable levels again, a harder 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 December 31, 2023:
Caldwell North American Fund Series F: 1 Year: 11.0%, 3 year: 9.5%, 5 year: 9.9%, Since Inception (August 8, 2014): 6.5%.
50% S&P/TSX Composite Total Return Index and 50% S&P500 Total Return Index: 1 Year: 17.3%, 3 year: 10.5%, 5 year: 13.2%,
Since Inception (August 8, 2014): 10.6%.
All data is as of December 31, 2023 sourced from Capital IQ, unless otherwise specified.
First purchased: MSFT 2/2/2022, AMZN 2/2/2023, STN 10/17/2022.
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 17, 2023

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