Month End Recap:
For the month of December, the Caldwell U.S. Dividend Advantage Fund (UDA or Fund) declined 3.6% versus a gain of 0.3% for the S&P 500 Total Return Index (Index). From a sector standpoint, Communication Services, Consumer Discretionary, and Information Technology were relative outperformers, whereas Materials, Energy, and Real Estate underperformed.
Top performers in the month of December were Broadcom (AVGO), Meta Platforms (META), and Ares Management (ARES). AVGO rallied after the company projected that its Serviceable Addressable Market (SAM) for AI chips and related networking could expand to between $60 billion and $90 billion by 2027. This would be a significant increase from the $12.2 billion in AI revenue that the company was able to capture in 2024 and is attributed to anticipated large-scale deployments by major hyperscale customers. This optimistic forecast underscores the company’s strategic positioning to capture a substantial share of the burgeoning AI hardware market. META rerated higher as investors continued to appreciate the company actively leveraging its AI innovation to drive improved returns on advertisement spend on its platforms. Furthermore, the heightening prospects of a U.S. ban on TikTok, with its 170 million users and $12.3 billion in ad revenue, has boosted investor confidence. A ban would drive user migration to the company’s platforms, increase advertising revenue substantially, and eliminate a key competitor, enabling META’s Reels to gain market share and strengthen its position in the short-form video space, fueling optimism about its growth prospects. ARES continued to perform well, driven by a favorable macroeconomic environment post-U.S. election, which enhanced investment realizations and capital deployment. The consolidation of the direct lending market, with the top 25 players now accounting for over 50% of the volume – up from approximately 35% five years ago – positions ARES as a key beneficiary due to its established presence. Additionally, the firm’s optimistic outlook for the real estate sector further strengthens investor confidence and growth prospects.
During the month of December, the Fund initiated a position in Interactive Brokers (IBKR). IBKR is a global electronic brokerage firm offering automated trade execution and custody services across various financial instruments, including stocks, options, futures, foreign exchange, bonds, mutual funds, and cryptocurrencies. Serving a diverse clientele – comprising individual investors, hedge funds, proprietary trading groups, financial advisors, and introducing brokers – the company provides access to over 150 markets worldwide. The company benefits from a massive global total addressable market of 70-80 million sophisticated investors, significantly exceeding its current 3.3 million customer accounts, providing substantial room for growth and market penetration. Its technology-focused, cost-efficient model automates operations to maintain industry-leading margins while passing savings to customers. Its plug-and-play Application Programming Interfaces (APIs) attract international introducing brokers, fostering client stickiness. With its international account growth outpacing the U.S., the company is well-positioned for substantial global expansion.
For the fourth quarter of 2024, UDA gained 4.4% versus a gain of 9.0% for the Index. Top contributors to the performance were Broadcom (AVGO), FTAI Aviation (FTAI), and Houlihan Lokey (HLI). AVGO was also a top performer in the month of December and was already discussed in the monthly section above. FTAI rallied after delivering strong earnings and raising its full-year guidance. Ongoing disruptions in the aerospace supply chain and production issues at Boeing drove strong demand for its aerospace products, which are sold on a stand-alone basis and used in major aircraft engine overhauls. Given the company’s industry-leading costs and shorter engine overhaul times, we believe demand will remain robust as more airlines recognize the value of their services. HLI significantly beat its quarterly earnings expectations driven by improving capital markets conditions and lower interest rates, which are translating into higher activity levels. Additionally, heightened restructuring activity is also an expected tailwind that should persist well into this year.
The Fund held a 9.5% 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 December 31, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 30.6%, 3 year: 7.9%, 5 year: 10.8%, Since Inception (June 19, 2015): 9.6%.
S&P500 Total Return Index: 1 Year: 36.4%, 3 year: 13.8%, 5 year: 16.9%, Since Inception (June 19, 2015): 15.3%.
2Actual investments, first purchased: AVGO 11/15/2022, META 10/17/2024, ARES 9/14/2023, FTAI 12/5/2023, HLI 4/9/2024.
All data is as of December 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: January 21, 2024.