December 2023 | Caldwell Canadian Value Momentum Fund Commentary

December Recap:

For the month of December, the Caldwell Canadian Value Momentum Fund (“CVM” or “Fund”) declined -1.6% versus a gain of +3.9% for the S&P/TSX Composite Total Return Index (“Index”). From a sector standpoint, Healthcare, Real Estate, and Financials were relative outperformers, whereas, Energy, Communication Services, and Materials underperformed.

Top performers in the month of December were Chartwell Retirement Residences (“CSH.UN”), Boardwalk Real Estate Investment Trust (“BEI.UN”), and Stantec (“STN”). CSH.UN rerated higher as its occupancy rates continue to recover toward their pre-pandemic levels, which should continue to lower its payout ratio to levels that are more attractive for investors. BEI.UN also benefitted from continued positive trends in occupancy rates and average monthly rent. 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 month of December, the Fund initiated positions in NFI Group (“NFI”), Element Fleet Management (“EFN”), goeasy Ltd. (“GSY”), Boyd Group Services (“BYD”), Interfor (“IFP”), Tricon Residential (“TCN”), Restaurant Brands International (“QSR”), Russel Metals (“RUS”), MDA Ltd. (“MDA”), Bank of Montreal (“BMO”), and Canadian Western Bank (“CWB”).

NFI is the largest North American manufacturer of transit buses and motor coaches with a global footprint. The company’s margins are likely to remain on an improving trajectory as a result of a favourable U.S. transit funding backdrop.

EFN is the world's largest publicly traded fleet management company, providing vehicle fleet leasing and fleet management solutions to international companies. The company should be able to go through its record backlog at a greater pace as Original Equipment Manufacturer (“OEMs”) are expected to increase their production rates.

GSY is a Canadian provider of non-prime lending and leasing services, managing a loan portfolio comprising secured as well as unsecured installment loans. The company has a scale advantage over the smaller competitors. Moreover, the banks tightening their credit standards paired with accelerating immigration should continue driving demand for the company.

BYD is one of the largest operators of non-franchised collision repair centres in North America with over 600 collision centres. An increasing technician capacity along with growth in scanning and calibration services should drive margin enhancement beyond its pre-pandemic levels.

IFP is the fourth-largest lumber producer in North America, with the U.S. accounting for approximately 59% of its capacity base. The expectations of a lower interest rate environment are leading to an acceleration in housing starts, which provides the company with a stronger demand environment.

TCN is a rental housing company that owns and operates over 37,000 single-family rental homes and multi-family apartments in the U.S. Sun Belt and Canada. The expectations of a lower interest rate environment paired with a shortage of rental properties in the U.S. should ensure that the company continues to experience robust demand.

QSR is the parent company of Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Its network consists of over 29,000 restaurants spanning over 100 countries. The company is showing momentum in its international expansion and its investments in Burger King are starting to drive better same-store sales.

RUS is one of the largest metals distribution and processing companies in North America, based in Ontario. The company’s demand is being supported by the significant infrastructure spending in North America.

MDA is the largest space company in Canada, designing and manufacturing satellite antennas, payloads, and subsystems. It is also a world leader in space robotics. The company is seeing significant growth in its backlog and a strong pipeline of opportunities resulting from structural improvements in the industry as launch capacity has been increasing.

BMO is the third-largest Canadian bank by market capitalization, offering a broad range of retail banking, wealth management, insurance, and investment banking products and solutions, predominantly in Canada and the U.S.  Concerns regarding accretion from its Bank of the West acquisition are waning as the bank revealed an approximately 20% increase in planned expense synergies.

CWB is the seventh-largest Canadian bank by market capitalization and the largest Western-based bank in Canada. It focuses on providing financial services to small and medium businesses and individuals. The bank has a larger exposure to the western provinces allowing it to benefit from greater population growth through higher immigration. The lowering interest rate environment should also support its profitability.

Top contributors to performance over the fourth quarter were Hammond Power Solutions (“HPS”), Constellation Software (“CSU”), and Stantec (“STN”). HPS continued to re-rate higher following strong earnings that saw robust growth in both revenues and backlog. We believe sustainable demand trends in key end markets and recent capacity additions will allow the company to outperform over the medium to long term. CSU’s third-quarter earnings exceeded analysts’ expectations as the company continues to make progress in restructuring and improving the profitability of its Altera business. The company also continues to execute its successful acquisition strategy and has recently targeted larger deals. This should bolster the company’s ability to generate industry-leading topline growth over the medium term. STN was discussed in the monthly section above.

The Fund held a 2.2% cash weighting at month-end. While we remain mindful of the macro environment, the Fund employs a bottom-up investment approach designed to seek out attractive investment opportunities in any market. CVM has generated substantial value for 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 2024 and beyond.

Standard performance as at December 31, 2023:
Caldwell Canadian Value Momentum Fund (Series F): 1 Year: 4.9%, 3 year: 6.4%, 5 year: 9.1%, Since Inception (August 29, 2014): 7.4%.
S&P/TSX Composite Total Return Index: 1 Year: 11.8%, 3 year: 9.6%, 5 year: 11.3%, Since Inception (August 29, 2014): 6.4%.
Actual Investments, first purchased: CSH.UN 11/2/2023, BEI.UN 11/2/2023, STN 10/17/2022.

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 & Morningstar Direct.

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.

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 Although Fundata makes every effort to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Fundata.

Publication date: January 17, 2024.

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