April 2023 | Caldwell U.S. Dividend Advantage Fund Commentary

April Recap:

For the month of April, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained 0.4% versus a gain of 1.8% for the S&P500 Total Return Index (“Index”)¹. At the sector level, top performers were Communication Services, Consumer Staples, and Energy, whereas Industrials, Consumer Discretionary, and Materials were relative underperformers. The positive performance of equities in April was generally broad-based, with Consumer Discretionary and Industrials being the only sectors in the Index delivering slightly negative returns.

Top performers in April were PulteGroup (“PHM”, +15.5%), Murphy USA (“MUSA”, +6.9%), and Microsoft (“MSFT”, 6.8%). PHM re-rated higher as it continued to benefit from strong demand, which has been providing the company with opportunities to pull back on giving incentives as well as allowing the company to raise prices. MUSA has been benefitting from higher traffic driving its convenience store sales as well as gaining market share as elevated prices draw customers to MUSA’s low-price strategy. MSFT delivered strong quarterly earnings, as the renewal rates for Microsoft 365 as well as PC demand were greater than the market had expected.

During the month of April, the Fund initiated positions in Murphy USA (“MUSA”), Dollar General (“DG”), and UnitedHealth Group (“UNH”). MUSA is a leading marketer of retail fuel and convenience merchandise through a network of over 1,700 gas stations, which are typically located near Walmart stores. The company should continue benefitting from higher traffic and retain its market share gains as customers that initially came due to elevated fuel prices exhibit sticky behaviour. DG is a discount retailer of mass-consumption products with over 18,000 stores across the U.S. The company is well positioned to perform relatively well against a backdrop of a weakening consumer. Additionally, the inventory levels have shown a sequential improvement, alleviating some of the concerns that had led the stock to underperform in the prior months. UNH is the largest health insurer in the U.S. offering a broad range of products to corporate customers as well as individuals. The company’s scale and diversification ensure a sustainable competitive advantage. Additionally, the prospects of revenue upside from OptumCare do not appear to be fully priced in.

The Fund held a 7.5% 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. Over the long run, given its unique momentum-driven investment approach and focus on well-managed, dividend growth companies, we believe UDA is well-positioned to provide strong performance by way of both attractive regular monthly distributions and long-term capital appreciation potential. We expect that our approach to dividend growth investing should continue to provide a means of generating compelling risk-adjusted returns for our investors over the long term.

¹All returns (for the fund, individual stocks and sectors) are in total return, Canadian dollar terms. All stock returns represent performance for the full period noted. All fund returns are in respect of Series F.
Standard performance as at April 30, 2023:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 6.7%, 3 year: 8.8%, 5 year: 9.2%, Since Inception (June 19, 2015): 8.3%.
S&P500 Total Return Index: 1 Year: 9.0%, 3 year: 13.6%, 5 year: 12.7%, Since Inception (June 19, 2015): 12.5%.

²Actual investments, first purchased: PHM 2/2/2023, MUSA 12/29/2021, MSFT 7/20/2016.
All data is as of April 30, 2023 sourced from Morningstar Direct or S&P Capital IQ, unless otherwise indicated. Fund returns are from FundData. UDA, Index total return numbers, sector returns and individual stocks returns are in CAD terms. The Fund was first offered to the public as a closed-end investment since May 28, 2015. Effective November 15, 2018 the Fund was converted into an open-end mutual fund such that all units held were redesignated as Series F units. Performance prior to the conversion date would have differed had the Fund been subject to the same investment restrictions and practices of the current open-end mutual fund.

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. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund, are taxable in your hands in the year they are paid. Your adjusted cost base (“ACB”) will be reduced by the amount of any returns of capital and should your ACB fall below zero, you will have to pay capital gains tax on the amount below zero.

Publication date: May 16, 2023.