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

August Recap:

For the month of August, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) outperformed its benchmark, the S&P500 Total Return Index (“Index”)¹, by 0.5%, with a return of 1.7% versus a return on the index of 1.2%. At the sector level, top performers were Energy, Communication Services, and Healthcare, whereas, Utilities, Consumer Staples, and Materials were relative underperformers.

Top performers in the month of August were TJX Companies (“TJX”, +10.3%), Comfort Systems (“FIX”, 9.2%), and Quanta Services (“PWR”, 7.0%). TJX rerated higher as it surpassed its quarterly expectations, delivering same-store sales growth of 6% versus the 2 to 3% growth that had been expected. The company’s value proposition resonated with consumers, which led to an increase in foot traffic. FIX continues to benefit from persistent demand to the point where the company turned down work in some instances due to capacity constraints. However, further capacity buildouts are underway. Its management also expects margins to continue trending slightly higher for the remainder of the year. PWR delivered robust earnings for the quarter and also raised its 2023 guidance as it continues to see strong demand for its infrastructure solutions related to the energy transition.

During the month of August, the Fund initiated positions in United Rentals (“URI”), Federal Agricultural Mortgage Corporation (“AGM”), ConocoPhillips (“COP”), Old Dominion Freight Line (“ODFL”), and Nvidia (“NVDA”). URI is the largest equipment rental company in North America, offering over 4,000 classes of equipment. The company has been benefitting from non-residential construction as well as elevated broad-based end-market activity. AGM provides a secondary market for agricultural real estate loans made to borrowers. The company should benefit from the fallout of the recent banking crisis as some banks and lenders look to cut their risk exposures and improve their capital positions, which should translate into increased loan purchase volumes. COP is the largest independent oil and gas producer with producing assets including conventional, unconventional, oil sands, and LNG (Liquefied Natural Gas). The company’s cost-cutting initiatives along with higher expected utilization should lead to margin improvements. ODFL is a less-than-truckload carrier that provides regional as well as national freight services. The company is poised to benefit from Yellow Corporation’s recent bankruptcy, which was a large competitor. NVDA invented the GPU (Graphics Processing Unit), which was originally focused on processing graphics in computers. However, the company has recently aimed its solutions at fields such as AI (Artificial Intelligence), virtual reality, and high-performance computing. Being the preferred enabler of AI with deep competitive advantages, the company is poised to benefit from the structural tailwinds in data centers, AI, and autonomous driving vehicles.

The Fund held a 2.0% 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 August 31, 2023:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 7.1%, 3 year: 8.2%, 5 year: 7.6%, Since Inception (June 19, 2015): 8.1%.
S&P500 Total Return Index: 1 Year: 19.8%, 3 year: 11.9%, 5 year: 11.9%, Since Inception (June 19, 2015): 13.1%.

²Actual investments, first purchased: TJX 11/8/2022, FIX 11/9/2022, PWR 3/9/2022.

All data is as of August 31, 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: September 18, 2023.