Month End Recap:
For the month of August, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained 0.6%, versus a decline of -0.1% for the S&P 500 Total Return Index (“Index”). From a sector standpoint, Consumer Staples, Real Estate, and Healthcare were relative outperformers, whereas Energy, Consumer Discretionary, and Communication Services underperformed.
Top performers in the month of August were FTAI Aviation (“FTAI”), Tetra Tech (“TTEK”), and Eli Lilly (“LLY”). FTAI continued its upward trajectory, with a 30% increase in its adjusted EBITDA (“Earnings Before Interest, Taxes, Depreciation, and Amortization”) in the recent quarter, bolstered by strong demand in its leasing and aerospace products segments. The company’s ability to control costs and optimize margins, along with raising its EBITDA estimates, has driven positive sentiment among investors, contributing to the stock’s continued strength. TTEK delivered strong quarterly results driven by increased demand for high end consulting services, particularly in environmental and water treatment projects. The company’s strategic focus on front-end advisory and consulting work led to margin expansion, improving overall profitability. Additionally, the strong backlog in key business segments supported robust revenue performance. LLY rerated higher as its quarterly results exceeded expectations significantly, driven by favorable shifts in Incretin pricing and some channel stocking. The company raised its 2024 guidance and remains on course to boost obesity and diabetes treatment volumes by over one and a half times in sellable doses by year¬ end. Additionally, new plans to introduce Zepbound in vials in the U.S. could further enhance supply, particularly in early 2025.
During the month of August, the Fund initiated positions in KLA Corp. (“KLAC”), McKesson (“MCK”), Monolithic Power Systems (“MPWR”), and Iron Mountain (“IRM”).
KLAC is one of the major suppliers of equipment used to fabricate semiconductors. It offers yield management solutions that help improve output and reduce costs. A recovery in foundry and logic spending and customer fabrication plant utilization rates is leading to higher inspection tool investments and services demand. This should support growth for the remainder of the year.
MCK is one of the largest distributors of prescription medicines and surgical supplies in North America with an approximate share of one-third of the U.S. wholesale prescription drug market. The company’s earnings growth should accelerate in the coming quarters, primarily driven by OptumRx. Additionally, it continues to experience strong segment growth across its distribution channels, further solidifying its leadership position in oncology.
MPWR is a designer of semiconductors that make power systems more efficient. Its solutions are used to convert and control the voltages of various electronic systems. The company serves diverse, high-growth end markets, and is expected to benefit from higher content in areas such as datacenters, Artificial Intelligence (“AI”), the Internet of Things (“IoT”), and automotive, which support continued market outgrowth and share gains over time. The company is a leader in analog and mixed signal, and power technology, offering solutions that are ahead of its competitors with significantly more embedded digital content. Despite short-term challenges in certain markets, excluding the strong performance in Enterprise Data, we believe the company’s advanced solutions should support sustainable growth.
IRM is a global leader in information management services, providing secure storage, data protection, and asset management solutions. With a broad portfolio that spans digital transformation, secure shredding, and records management, the company serves a diverse range of industries. The company has a strong, recurring revenue model, driven by long-term customer relationships and the increasing need for data security and compliance. The company is set to experience continued robust demand as the capital expenditure plans of Hyperscalers lead to strong growth in its datacenter business.
The Fund held an 8.0% 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, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 20.4%, 3 year: 8.4%, 5 year: 10.4, Since Inception (June 19, 2015): 9.3%.
S&P500 Total Return Index: 1 Year: 26.6%, 3 year: 11.8%, 5 year: 16.2%, Since Inception (June 19, 2015): 14.5%.
2Actual investments, first purchased: FTAI 12/5/2023, TTEK 6/23/2023, LLY 9/14/2023.
All data is as of August 31, 2024 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 25, 2024.