The Caldwell Canadian Value Momentum Fund (“CVM” or “Fund”) gained +3.3% in January versus a gain of +7.4% for the S&P/TSX Composite Total Return Index (“Index”). At the sector level, Information Technology, Health Care, and Real Estate were relative outperformers, whereas Consumer Staples, Utilities, and Industrials underperformed. The market rallied in January following the dismal performance posted by equities last year. It was generally the high-growth and valuation-rich stocks that delivered the strongest performances in January. This was a result of a sudden and aggressive shift towards a risk-on sentiment in the market, which was quite contrary to the risk averseness that investors had exhibited last year. This abrupt change in sentiment can be attributed to heightened hopes that inflationary pressures are abating, as the Consumer Price Index (“CPI”) data published in January demonstrated that inflation declined or remained constant for the sixth consecutive month in December. Subsequently, investors increasingly formed the view that the Bank of Canada will be adopting a less hawkish stance, leading to increased expectations of smaller rate increases going forward. This fueled the perceived probability of the Canadian economy avoiding a classic recession and instead experiencing the less destructive soft-landing scenario, which would consist of a gradual slide in economic conditions without a severe spike in unemployment or a catastrophic decline in consumer spending. As a result, the fundamentally weaker areas of the market that posted some of the worst declines last year, as a consequence of lacking quality earnings to weather a possible recessionary environment, experienced a sharp turnaround in their stock prices. This allowed them to recover some of the sizable losses that they had generated last year. As the Fund was positioned to generate attractive risk-adjusted returns, while also ensuring the protection of capital amidst the backdrop of weakening economic conditions, its participation in January’s market rally, fueled by the abrupt change in sentiment, was somewhat muted.
Top performers in CVM’s portfolio for the month of January were ATS Corporation (“ATS”, +28.0%), Martinrea International (“MRE”, +14.3%), and Teck Resources (“TECK.B”, +12.5%). ATS has been benefitting from the high demand for industrial automation. In particular, the electric vehicle segment has been growing fast and new contracts are likely to keep surfacing for the company. MRE was re-rated higher by the market as inflation and monetary tightening were perceived to be easing and the auto parts industry is interest rate sensitive, as most vehicle purchases are financed or leased. TECK.B continued to generate strong cash flows as a result of better-than-expected realized coal prices. Additionally, investors have been attracted to the company’s copper production, which is expected to grow considerably going forward.
During January, the Fund initiated positions in Torex Gold Resources (“TXG”), Dream Industrial REIT (“DIR.UN”), Labrador Iron Ore Royalty (“LIF”), and Whitecap Resources (“WCP”). TXG is a Canadian-domiciled company involved in gold exploration, development, and production with its assets in Mexico. The company offers a consistent production profile with considerable exploration upside, in addition to possessing a robust balance sheet. DIR.UN is an open-ended real estate investment trust, which owns and operates over 260 industrial properties in North America, along with a growing presence in Europe. Its properties primarily consist of distribution and urban logistics centres, which provide quality exposure to secular tailwinds from e-commerce growth. It also offers a dividend yield of about 4.8%, in addition to its prospects for delivering capital appreciation. LIF generates income from the Iron Ore Company of Canada (“IOC”) as it holds a 15% equity interest. Production has shown improvement in the last few quarters and we can expect to see increased operational consistency going forward. WCP is an oil and gas company that acquires and develops energy properties in Canada. The company recently announced the sale of its non-core assets allowing it to move closer to its leverage targets and to return substantial capital to shareholders through dividends and share repurchases.
The Fund held an 11.3% cash weighting at month-end. 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 2023 and beyond.
Standard performance as at January 31, 2023:
Caldwell Canadian Value Momentum Fund (Series F): 1 Year: -5.2%, 3 year: 9.4%, 5 year: 7.7%, Since Inception (August 29, 2014): 8.0%.
S&P/TSX Composite Total Return Index: 1 Year: 1.6%, 3 year: 9.5%, 5 year: 8.7%, Since Inception (August 29, 2014): 6.6%.
Actual Investments, first purchased: ATS 2/16/2020, MRE 8/25/2017, TECK.B 5/9/2022.
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 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.
Publication date: February 21, 2023.