Month End Recap:
For the month of June, the Caldwell Canadian Value Momentum Fund (“CVM” or “Fund”) declined -0.5% versus a decline of -1.4% for the S&P/TSX Composite Total Return Index (“Index”). From a sector standpoint, Information Technology, Healthcare, and Industrials were relative outperformers, whereas, Materials, Communication Services, and Energy underperformed.
Top performers in the month of June were AtkinsRéalis (“ATRL”), goeasy (“GSY”), and Descartes Systems (“DSG”). ATRL’s stock price rose following their investor day due to the unveiling of their strategic plan, which included ambitious targets for 2025-2027. The plan emphasized margin expansion and strong growth, with a focus on an organic revenue CAGR of over 8% for Engineering Services and an ambitious revenue target for the Nuclear segment. Additionally, the announcement of plans to sell its 6.8% stake in Highway 407, improved free cash flow projections that are expected to support mergers and acquisitions and capital returns to shareholders, and positive management commentary contributed to a favourable market response. GSY recently announced that it is on track to launch a non-prime credit card by 2025. The strategic move would expand the company’s addressable market and product diversity, which boosted investor confidence, contributing to the stock’s rise. DSG rerated higher as investors most likely appreciated that the company’s margins have the potential to move higher as a result of the recent data acquisitions, while the valuation range is still in line with its historical average.
During the month of June, the Fund initiated positions in NFI Group (“NFI”), Cargojet (“CJT”), Pason Systems (“PSI”), Royal Bank of Canada (“RY”), and Waste Connections (“WCN”).
NFI is the largest North American manufacturer of transit buses and motor coaches with a global footprint. The company is poised to achieve margin improvement from a cyclical recovery as well as maintaining a higher-margin backlog. Additionally, new progress payment guidelines from the Federal Transit Administration should lead to accelerated free cash flow generation and debt deleveraging.
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 now increasing evidence of stabilization in package volumes as well as pricing. Furthermore, the company recently signing a three-year contract to operate flights between China and Canada is constructive for its fundamental growth outlook.
PSI supplies electronic instrumentation and data acquisition equipment for the oilfield services industry, dominating in Canada and growing in the U.S. It provides global drilling rig data management solutions for real-time decision-making. The stock is attractive due to its technology and data leadership, which has boosted its revenue per industry day despite stagnant U.S. rig count. The introduction of a Mud Analyzer in the Drilling Segment is expected to drive rates higher, further enhancing revenue. Additionally, the acquisition of Intelligent Wellhead Systems expands its technological leadership to well completions, an area with growth potential due to its lag in technology adoption compared to drilling.
RY is Canada's largest bank by assets and market capitalization, offering personal and commercial banking, wealth management, insurance, and corporate and investment banking services globally. Its scale advantage drives better cost absorption, resulting in a peer-leading efficiency ratio, which has been further enhanced by its recent acquisition of HSBC.
WCN is North America's third-largest solid waste services company, providing non-hazardous waste collection, transfer and disposal services, along with resource recovery primarily through recycling and renewable fuels generation, in the U.S. and six Canadian provinces. It also provides non-hazardous oil and gas exploration and production waste services and intermodal services for cargo and solid waste containers in the Pacific Northwest. The company’s improving employee turnover lowers costs, enhances safety, improves customer satisfaction, and supports growth opportunities by reducing overtime and subcontracting costs. Newly trained employees positively impact financial performance, and this trend is expected to boost operational efficiency through 2025.
For the second quarter of 2024, top contributors to performance were Celestica (“CLS”), goeasy ("GSY"), and Element Fleet Management (“EFN”). CLS rerated higher as the company confirmed that it continues to benefit from the Generative Artificial Intelligence (“AI”) data spending that is being done by the hyperscalers. GSY was also a top performer in the month of June and was already discussed in the monthly section above. EFN has been rerating higher due to its strong growth initiatives, including new services and digitization efforts, robust financial performance with leading margins, coupled with improving market conditions. Additionally, strategic acquisitions and partnerships, along with a focus on operational efficiency and innovation, have bolstered investor confidence in the company's growth prospects.
The Fund held a 1.5% 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 June 30, 2024:
Caldwell Canadian Value Momentum Fund (Series F): 1 Year: 9.7%, 3 year: 3.3%, 5 year: 9.0%, Since Inception (August 29, 2014): 8.0%.
S&P/TSX Composite Total Return Index: 1 Year: 12.1%, 3 year: 6.0%, 5 year: 9.3%, Since Inception (August 29, 2014): 6.7%.
Actual Investments, first purchased: ATRL 3/31/2023, GSY 12/7/2023, DSG 11/11/2022.
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.
Publication date: July 17, 2024.