March 2023 | Caldwell Canadian Value Momentum Fund Commentary

March Recap:

The Caldwell Canadian Value Momentum Fund (“CVM” or “Fund”) declined -0.8% in the month of March versus a decline of -0.2% for the S&P/TSX Composite Total Return Index (“Index”). From a sector standpoint, Information Technology (”IT”), Materials, and Utilities were top performers, whereas Health Care, Financials, and Real Estate were laggards. Turmoil in the banking industry - including the failure of several large U.S. regional banks and Credit Suisse in Europe - led to contagion fears and a steep sell-off of bank stocks in the Financials sector. While the Federal Reserve’s swift action largely contained the crisis, investors began to price-in a shift in Fed policy to pause and then cut interest rates later in the year. This was markedly different from what was priced-in before the crisis and thus, investors rapidly rotated into longer-duration stocks/sectors (i.e. stocks that benefit from lower interest rates) such as IT. The increase in volatility also led to a sharp rise in the price of gold which propelled the Materials sector higher. The continued sell-off of cannabis names contributed to the Health Care sector’s underperformance. Real Estate underperformed on the anticipation of tighter lending standards (i.e. less abundant and higher-cost funding) as a result of the banking crisis, which would likely impact the ability to earn an acceptable return on real estate projects.

For the month of March, top performers in the Fund were Ag Growth International (“AFN”, +11.8%), Descartes Systems Group (“DSG”, +8.4%), and CGI Inc (“GIB.A”, +6.5%). AFN posted solid quarterly results, noting strong customer demand across all geographic regions. Its bid pipeline is robust, global agricultural fundamentals are positive, and its backlog should support healthy growth and profitability in the near to medium term. Lastly, the company’s deleveraging campaign is progressing well, which should contribute to the stock’s positive re-rating. DSG’s earnings results were positive in light of the uncertain macro environment. The story continues to be driven by a recovery in global shipping volumes in the second half of 2023 as China’s reopening progresses and retailer inventories are rebuilt following the most recent drawdown cycle. The company’s clean balance sheet and cash balance provide ammunition for more acquisitions with DSG’s management noting a healthy deal pipeline. Amidst macroeconomic uncertainty and high inflation, GIB.A’s customers are highly focused on cost savings, leading to strong results in its managed services and IP (intellectual property) businesses. While growth has pulled back from record levels, demand remains healthy and a large backlog supports growth in the medium term. Additionally, given the margin-accretive nature of managed services and IP, we believe GIB.A is well-positioned to generate operating leverage going forward.

During the month of March, the fund initiated positions in MEG Energy (“MEG”), Aecon Group (“ARE”), SNC-Lavalin Group (“SNC”), Ero Copper (“ERO”), Stella-Jones (“SJ”), Torex Gold (“TXG”), and Alamos Gold (“AGI”). MEG is a pure-play oil sands company with significant acreage and proven and probable reserves in the Athabasca region in Alberta. Strong production results and an aggressive debt reduction campaign should drive improved shareholder returns once leverage reaches target levels. ARE provides construction and infrastructure development services. We believe the sale of the company’s roadbuilding business was announced at a very attractive multiple (relative to the core business) and helps ARE focus its efforts on its customers’ sustainable infrastructure projects. It will also allow ARE to further reduce leverage and the capital intensity of its overall business. SNC, the largest engineering and construction firm in Canada, is undergoing a transition to a pure-play consulting firm. Two key projects that have negatively weighed on results in recent years are expected to be delivered by the end of 2024, which should drive an improvement in margins and free cash flow, and thus a positive re-rating in the stock. ERO, a copper-dominant base metal producer, has done a solid job of delivering on production growth while controlling input cost inflation. Their recent five-year production outlook was better than forecasted and driven primarily by low-risk growth projects. Lower-than-expected capital spending costs support elevated free cash flow down the line. SJ is a leading supplier of pressure-treated wood products to utility, telecommunications, railway, and residential construction end markets. Strong demand across end markets provides solid medium-term growth visibility while better execution on inflation price pass-throughs should contribute to margin improvement. While both TXG and AGI benefited from higher gold prices, TXG’s expected transformation from a 100% pure gold producer to a gold, copper, and silver producer should drive a re-rating of its shares and AGI should benefit from a growing gold production profile in 2023.

For the first quarter of 2023, CVM gained 2.4% versus a gain of 4.6% for the Index. Ag Growth International (“AFN”, +41.8%), ATS Corp (“ATS”, +34.4%), and Stantec (“STN”, +22.1%) were top performance contributors. AFN was discussed in the monthly results. The Electric Vehicles (“EV”) segment, with nearly $600 million in new orders over the past three quarters, continued to drive ATS’s strong performance in the first quarter of 2023. The segment is seeing strong traction with existing auto manufacturer clients and management noted that it is still early stages given those customers' aggressive EV and battery manufacturing build plans. We believe higher bookings support better topline growth visibility for ATS which has contributed to the stock’s positive re-rating. STN moved higher on strong earnings results and a positive outlook. The company continues to improve its margin profile, and exposure to the U.S. and infrastructure end markets should support its industry-leading growth profile as federal stimulus funding flows through.

The Fund held a 20.3% 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 2023 and beyond.

Standard performance as at March 31, 2023:
Caldwell Canadian Value Momentum Fund (Series F): 1 Year: -9.3%, 3 year: 17.7%, 5 year: 7.4%, Since Inception (August 29, 2014): 7.7%.
S&P/TSX Composite Total Return Index: 1 Year: -5.2%, 3 year: 18.0%, 5 year: 8.8%, Since Inception (August 29, 2014): 6.1%.

Actual Investments, first purchased: AFN 7/25/2016, DSG 11/11/2022, GIB.A 5/30/2022.

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: April 14, 2023.

Website | + posts
Want to hear something good?Sign up for updates