December 2019 | Caldwell Canadian Value Momentum Fund Commentary

December 2019 Recap:

The Caldwell Canadian Value Momentum Fund (We’ve rebranded! Our acronym has been shortened to “CVM”), declined 1.7% in December versus a gain of 0.5% for the S&P/TSX Composite Total Return Index (“Index”). While the Index posted a positive return, six of its eleven sectors were actually down for the month. Energy (+5.7%), Materials (+4.6%, led by gold stocks) and Technology (+3.2%, led by Shopify (+18.1%)) were the Index's top performers, while Consumer Staples (-5.2%) and Consumer Discretionary (-3.6%) were the worst performers.

Top CVM performers in December were Wesdome Gold (“WDO”: +16.5%) and North American Construction (“NOA”: +9.0%). WDO responded to positive drilling results and overall positive sentiment on gold names, while NOA responded to strength in the Energy sector with the price of crude oil +10.7% in December.

The CVM's performance was dragged down by holdings in the Canadian grocers, Empire (-14.4%) and Metro (-7.9%), after Empire reported an operational miss and cited increasing competition. 

One stock was added to the portfolio in December: Equitable Bank (“EQB”). The company calls itself "Canada's Challenger Bank" and is currently the country's 9th largest independent Schedule I Bank. It has a strong history of ROE generation and prudent lending and is seeing attractive growth in customers and assets. EQB is also diversifying its funding sources and product categories, which are driven by its digital platform capabilities. The company is targeting a $4/share dividend by 2024 (vs $1.40/share today), which works out to a 20-25% dividend growth CAGR. 

Full Year 2019 Recap:

The CVM gained 15.1% in 2019 versus a gain of 22.9% for the Index. While the CVM's absolute return was its 2nd highest annual return over the last six years, the CVM struggled to keep pace with the very strong Index return. Looking at the performance attribution, a few things stick out: i) The CVM lost 560 bps relative to the Index in January 2019, when the Fund entered the new year with over 50% in cash. While the CVM's sell discipline added considerable value by significantly insulating the portfolio from the sizeable market decline in Q4-18, the Index's V-shaped pattern (sharp decline at the end of 2018 followed by a sharp recovery in Q1-19), was tough on the strategy. ii) The big 6 banks and the utilities sector added 320 bps and 150 bps to the Index return, respectively. Banks and utilities typically don't screen well in the CVM model. iii) Shopify alone added 160 bps to the Index return. The stock was the 3rd strongest performer on the TSX, gaining 174% in 2019. While Shopify is showing strong growth and momentum and has an exciting story, the lack of earnings, and hence a valuation anchored on revenue, has kept us on the sidelines. The Canadian market has a history of seeing stocks show incredible gains to become among the largest companies in the market, only for investors to subsequently see them fall from grace. Shopify is currently the Index's 12th largest company by market cap. It has revenue of $1.4B relative to its $50B market cap. As a reference, the average revenue of the Index's top 20 companies by market cap (excluding Shopify), is $31.3B.

The CVM held a 9.7% cash weighting at year-end. The CVM has generated substantial value to investors over its long-term history driven by the combination of strong company-specific catalysts and a concentrated portfolio. We continue to look forward to strong results as we progress through 2020 and beyond.

We thank you for your continued support.

The CVM Team

Return since August 15, 2011 (Performance Start Date): 10.0%. | Returns are annualized for periods greater than one year. | Source: Morningstar

The CVM was not a reporting issuer offering its securities privately from August 8, 2011 until July 20, 2017, at which time it became a reporting issuer and subject to additional regulatory requirements and expenses associated therewith.

Unless otherwise specified, market and issuer data sourced from Capital IQ.

As the constituents in the Canadian Equity category largely focus on securities of a larger capitalization and CCVMF considers, and is invested, in all categories, including smaller and micro-cap securities, we have also shown how CVM ranks against constituents focused in the smaller cap category. The above list represents 6 of a total of 377 constituents in the Canadian Equity category and 5 of a total of 105 constituents in the Canadian Small/Mid Equity category.

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 14, 2020.

The Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. Lipper Leaders fund ratings do not constitute and are not intended to constitute investment advice or an offer to sell or the solicitation of an offer to buy any security of any entity in any jurisdiction. For more information, see lipperfundawards.com. Lipper Leader ratings change monthly. Lipper Fund Awards from Refinitiv, ©2019 Refinitiv. All rights reserved. Used under license. The Caldwell Canadian Value Momentum Fund Series A in the Canadian Equity Category for the 5-year period (out of a total of 69 funds) ending July 31, 2019. Lipper Leader ratings: 5 (3 years) and 5 (5 years).

FundGrade A+® is used with permission from Fundata Canada Inc., all rights reserved. The annual FundGrade A+® Awards are presented by Fundata Canada Inc. to recognize the “best of the best” among Canadian investment funds. The FundGrade A+® calculation is supplemental to the monthly FundGrade ratings and is calculated at the end of each calendar year. The FundGrade rating system evaluates funds based on their risk-adjusted performance, measured by Sharpe Ratio, Sortino Ratio, and Information Ratio. The score for each ratio is calculated individually, covering all time periods from 2 to 10 years. The scores are then weighted equally in calculating a monthly FundGrade. The top 10% of funds earn an A Grade; the next 20% of funds earn a B Grade; the next 40% of funds earn a C Grade; the next 20% of funds receive a D Grade; and the lowest 10% of funds receive an E Grade. To be eligible, a fund must have received a FundGrade rating every month in the previous year. The FundGrade A+® uses a GPA-style calculation, where each monthly FundGrade from “A” to “E” receives a score from 4 to 0, respectively. A fund’s average score for the year determines its GPA. Any fund with a GPA of 3.5 or greater is awarded a FundGrade A+® Award. For more information, see www.FundGradeAwards.com. Although Fundata makes every effort to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Fundata.

*  Categories defined by Canadian Investment Funds Standards Committee ("CIFSC")