September 2022 | Caldwell Canadian Value Momentum Fund Commentary

September Recap:

The Caldwell Canadian Value Momentum Fund (“CVM”) declined 4.5% in the month of September versus a decline of 4.3% for the S&P/TSX Composite Total Return Index (“Index”). From a sector standpoint, Materials, Financials and Consumer Staples were relative outperformers whereas Utilities, Energy and Real Estate underperformed.

Top performers in CVM’s portfolio for the month of September were CCL Industries (“CCL”, +3.4%), Intact Financial (“IFC”, +3.3%) and Shawcor (“SCL”, +8.7%). CCL continues to demonstrate strong execution and discipline in an inflationary environment. Over the last few quarters, pass-through pricing has been a key driver of organic growth, and while declining commodity prices may cause a deceleration in that metric, management would rather focus on profitability, opting to win new business in cases where price increases are not accepted. The company also noted competing buyers are finding it increasingly difficult to obtain financing for potential acquisitions. Given a solid balance sheet and leverage near the low end of its targeted range, CCL may benefit from less competition as it continues to execute on its growth by acquisition strategy. IFC provided positive updates on near and long term catalysts at a recent investor day. Specifically, IFC increased synergy targets for its RSA insurance group acquisition; provided a roadmap to improve the profitability of its international operations and; outlined the growth roadmap in its core Canadian and specialty lines division. SCL continues to re-shape the business, divesting non-core and less profitable assets. Most recently, it announced a strategic review of several oil and gas (“O&G”) focused businesses which have reported volatile results over time. Given a solid backlog and recent project awards, SCL could fetch a premium valuation for the assets, and proceeds could be used to fund organic growth initiatives. Additionally, SCL announced a new share repurchase program during the month.

During the month of June, the Fund initiated positions in Uni-Select (“UNS”) and Shawcor (“SCL”). UNS is a leading distributor of automotive refinish, industrial coatings and aftermarket auto parts in North America and the UK. Following years of underperformance, a new CEO and turnaround strategy are showing promising signs of success. Specifically, UNS has optimized its cost structure, exited non-core markets and reduced leverage on the balance sheet, all of which should allow UNS to drive consistent growth by consolidating a fragmented market. SCL is a material sciences company serving Infrastructure, Energy, and Transportation markets worldwide. Cost reductions and a strategic review of its portfolio should contribute to improved profitability and lower variability through cycles (through reduced O&G exposure). SCL has seen an uptick in bidding activity across segments over the last few quarters and management is very constructive on the growth outlook over the next few years given recent project awards. We believe the market will better appreciate a transformed SCL over time, which should drive valuation upside off of historically low levels.

For 3Q22, Element Fleet (“EFN”, +22.0%), Couchetard (“ATD”, +11.2%) and Intact Financial (“IFC”, +8.2%) were top performance contributors. EFN is seeing solid momentum in all business lines while prior headwinds related to new originations are beginning to fade. Strong earnings results, a robust order backlog and a full year guidance raise all helped to drive shares higher during the quarter. ATD continues to report strong fuel margins and easing pressure on the labour front, which contributed to a solid earnings beat. Strategic initiatives are driving growth non-fuel categories. Lastly, a clean balance sheet, limited share repurchases and robust deal pipeline suggest the company may be ready for a significant acquisition. Momentum at IFC was discussed above. Top performance detractors were Laurentian Bank (“LB”, -22.3%), Martinrea (“MRE”, +3.5%) and Cenovus (“CVE”, -12.9%). LB’s earnings results were weak as net interest margins and personal loan growth (a key focus of the turnaround strategy) came in below expectations. Additionally, the company’s outlook for commercial loan growth moderated, likely due to a slowing macro environment. Given the company is undergoing a turnaround, investors’ were less than pleased by the lack of consistent improvement in key operating metrics. The energy crisis in Europe poses a potential risk to global auto production in what has already been a challenging 18-24 months, weighing on shares of MRE. CVE likely declined along with falling crude oil prices. Note the Fund exited its position in LB.

The Fund held a 22% cash weighting at month-end. 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 2022 and beyond.

¹Standard performance as at September 30, 2022:
Caldwell Canadian Value Momentum Fund (Series F): 1 Year: -7.4%, 3 year: 7.9%, 5 year: 7.3%, Since Inception (August 29, 2014): 7.4%.
S&P500/TSX Composite Total Return Index: 1 Year: -5.4%, 3 year: 6.6%, 5 year: 6.5%, Since Inception (August 29, 2014): 5.2%.

²Actual Investments, first purchased: CCL 8/8/2017, IFC 5/19/2020, SCL 9/12/2022, EFN 10/26/2022, ATD 9/3/2022, MRE 8/8/2017, CVE 1/6/2022.

³Categories defined by Canadian Investment Funds Standards Committee (“CIFSC”).

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.
As the constituents in the CIFSC 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 400 constituents in the CIFSC Canadian 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.

Publication date: October 17, 2022.