October 2020 | Caldwell Canadian Value Momentum Fund Commentary

October 2020 Recap:

The Caldwell Canadian Value Momentum Fund (“CVM”) out-performed the S&P/TSX Composite Total Return Index (“Index”) by 270 basis points, down 0.4% in October versus a decline of 3.1% for the Index.1 Weakness within the Index was broad-based with 10 out of 11 sectors posting losses. Health Care (+7.4%) was the only winner (driven by a 31.1% gain in Canopy Growth - the stock remains down 8.3% year-to-date) while Technology (-8.7%) led the Index on the downside (something it hasn't done since April 2016). Turning to the CVM, security selection was strong with over 70% of the portfolio's names out-performing their respective sector returns. The CVM continued its track record of strong downside protection in October; since inception (August 2011), the CVM has outperformed the Index in down markets 82% of the time. Remarkably, over the last 3 years, that number is 100%.1

Top CVM performers in October were Xebec Adsorption (“XBC” +23.2%), Champion Iron Ore (“CIA” +15.7%) and Cargojet (“CJT” +14.7%).2 In addition to seeing strong demand for its cleantech solutions, XBC benefited from an initiation report by TD Securities that came with a $6.50 price target. This is the first Canadian bank to launch coverage on XBC and given the secular tailwinds behind cleantech and XBC's attractive technology within the space, we expect other initiations will follow. CIA has moved sharply higher following their Q2 earnings result. It was a strong operational quarter with low unit costs in a robust pricing environment where demand for CIA's products remains very strong. Company-specific catalysts include plans to sanction and provide details on its Phase II expansion project by year end, which would drive meaningful near term production growth. Lastly, CJT continues to benefit from both cyclical and secular tailwinds within its air-cargo businesses, prompting analysts to continue driving estimates higher.

Three stocks were added to the portfolio in October: Airboss of America (“BOS”), Stelco Holdings (“STLC”), and FirstService Corporation (“FSV”). BOS is seeing broad-based demand within its defence group on the back of pent-up demand for personal protective equipment (“PPE”), including BOS's Powered Air Purifying Respirator (“PAPRs”). Recent government contracts have been significant, but also create an attractive recurring revenue stream going forward. There is also significant upside from innovative product launches, such as the Blast Gauge, which measures explosive blast exposure on military personnel as a way of treating traumatic brain injury. Free cash flow should inflect higher as the company comes off a large CapEx year and its auto business benefits from an internal turnaround and recovering end market demand. We also see multiple catalysts to drive shares of STLC higher. In addition to strong steel prices and attractive input costs, company-specific catalysts include margin and volume upside from its blast furnace upgrade project  and under-appreciated land value. FirstService is a leading player and consolidator in a fragmented home services industry. The company is seeing robust end market demand from new housing growth, renovations, and storm-related restoration activity, and a growing pipeline of acquisition targets.

The Fund held a 16.0% cash weighting at month-end. The CVM has generated substantial value to 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 2020 and beyond.

We thank you for your continued support.

The CVM Team

CVM - Caldwell Canadian Value Momentum vs Canadian Small/Mid Cap Equity vs Canadian Equity

1See table for standard performance data.

2Actual Investments, first purchased: XBC 6/10/2020, CIA 6/28/2019, CJT 9/28/2016.

Return since August 15, 2011 (Performance Start Date): CVM 9.3%, Index 5.4%. | Returns are annualized for periods greater than one year. | Source: Morningstar

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.

As the constituents in the Canadian Equity category largely focus on securities of a larger capitalization and CVM considers, and is invested, in all categories, including smaller and micro-cap securities, we have also shown how CVM ranks against constituents focused in the smaller cap category. The above list represents 6 of a total of 377 constituents in the Canadian Equity category and 5 of a total of 98 constituents in the Canadian Small/Mid Equity category.

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.

*Categories defined by Canadian Investment Funds Standards Committee (“CIFSC”).

Publication date: November 10, 2020.

 

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