May 2018 | Caldwell Canadian Value Momentum Fund Commentary

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May Recap: 

The Fund gained 2.3% in May versus a gain of 3.1% for the S&P/TSX Composite Total Return Index ("Index”). The Index's performance was driven by strong performance in Technology (+7.8%), Industrials (+6.7%) and Materials (+5.5%) while yield-sensitive sectors continued to feel the pressure: Utilities (-1.9%) and Telecom (-0.6%). We suspect that there are many Canadian investors that are still under-water in their portfolios year-to-date, especially those that were sold on the 'safety' of dividends. While the Index is essentially flat year-to-date, the Utilities sector is -10.4% (think Transalta, Fortis and Algonquin Power), the Telecom sector is -7.7% (led by BCE, down 10.5%) and the Consumer Staples sector is -6.1% (led by market darling Alimentation Couche-Tard Inc. (“ATD.B”), down 17.5%).

Top CCVMF performers in May were BRP Inc. (“DOO”: +16.3%) and ATS Automation (“ATA”: +15.4%). BRP reported a knock-out quarter on May 31st with broad-based strength in sales (+19% y/y) as new products continue to perform very well. Gross margin was 160 bps higher y/y and FY guidance was raised on both the top and bottom lines. The stock saw strength going into the earnings release as channel-checks indicated strong product positioning and share gains. ATA also reported a very strong quarter, posting a 3rd straight quarter of double-digit revenue and triple-digit margin expansion. Bookings were strong with the backlog now sitting at record levels. The new CEO seems to be executing very well and re-iterated the target for 500 bps of margin expansion. The trend of automation seems to be accelerating as companies confront rising wages, scarcity of low-wage labor and regulatory increases in quality control.

One stock was added to the portfolio in May: Yangarra Resources (“YGR”). Yangarra is an oil and gas company with an operational focus on light oil development in the Cardium formation in West Central Alberta. The company is a low-cost organic growth story; production has increased from 2,000 barrel of oil equivalent per day (“boe/day”) in 2015 to 7,500 boe/day currently through innovative drilling and completion techniques that have allowed the company to access parts of the Cardium that were previously inaccessible. The company's costs rank amongst the lowest in their oil-weighted peer group (with full cycle returns amongst the highest), while the balance sheet is strong and valuation is in line with peers. We expect the company to continue releasing good results as they make their way to a 15,000 boe/day production target by 2019.

The Fund held a 29.3% cash weighting at month-end which is down to 17% at the time of writing. As previously discussed, we expect cash balances to move lower as we progress through the CCVMF's investment process. In the meantime, we look forward to tracking the progress of the portfolio’s holdings as we see a meaningful and diverse set of catalysts to drive continued growth.

We thank you for your continued support.

The CCVMF Team

The information contained in this document is designed to provide general information related to investment alternatives and strategies and is not intended to be investment or any other advice applicable to the circumstances of individual investors. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Unless otherwise specified, information in this document is provided as of the date of first publication and will not be updated. All information herein is qualified in its entirety by the disclosure found in the CCVMF’s most recently filed simplified prospectus. Information contained in this document has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. Unless otherwise indicated, rates of return are the historical annual compounded total 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 security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The CCVMF is a publicly offered mutual fund that offers its securities pursuant to simplified prospectus dated July 20, 2017. The CCVMF was not a reporting issuer prior to that date and formerly offered its securities privately as follows: Series F and Series I since March 28, 2014 and Series O since August 8, 2011. The expenses of the CCVMF would have been higher during the period prior to becoming a reporting issuer had the fund been subject to the additional regulatory requirements applicable to a reporting issuer. Inception Date: August 8, 2011. Principal Distributor: Caldwell Securities Ltd.

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