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

February Recap:

For the month of February, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained +0.2% versus a decline of -0.5% for the S&P 500 Total Return Index (“Index”)¹. At the sector level, top performers were Information Technology, Industrials, and Consumer Discretionary, whereas Energy, Real Estate, and Utilities were relative underperformers. The Fund benefitted from maintaining an outsized exposure to Information Technology as well as the Industrials sector, as compared to the Index.

Top performers in February were Comfort Systems USA (“FIX”, +22.6%), Quanta Services (“PWR”, +8.2%), and Monolithic Power Systems (“MPWR”, +15.8%). FIX’s quarterly earnings exceeded market expectations, with its order backlog growing 75% year-over-year. Its management also revealed that they expect reshoring activity to become a bigger growth driver for the company going forward. PWR continued to benefit from the secular trends of grid hardening, electric vehicle infrastructure, renewables, and increased fiscal funding. This was evident from the company achieving solid growth, strong margins, and an increased backlog during the recent quarter. MPWR delivered better quarterly results than its peers, with notable strength in its storage and automotive segments in particular. Additionally, the company experienced a slowdown in customer-requested order pushouts, indicating an improving demand environment.

During the month of February, the Fund initiated positions in Commercial Metals Company (“CMC”), FedEx (“FDX”), Microsoft (“MSFT”), The Progressive Corporation (“PGR”), and Steel Dynamics (“STLD”). CMC recycles and manufactures steel and steel products. It is also one of the largest producers of rebar in the U.S. serving the construction market primarily. Recent infrastructure bills support the need for additional domestic capacity to meet the heightened infrastructure-related demand. Secondly, the growing demand for new buildings in semiconductor, data center, and healthcare markets should provide support to CMC’s demand if the economic conditions deteriorate. FDX is a global leader in parcel delivery services. It provides a broad portfolio of transportation, e-commerce, and business services. The company is in the process of reducing its capacity to improve system yields, which should result in margin improvements going forward. MSFT develops, licences, and sells software, services, and solutions worldwide. The company should continue benefitting from its well-established dominance in the global PC market as well as its doubling down on the rapidly growing cloud computing market. It is particularly well-positioned for enterprise cloud adoption considering its immense preexisting customer base. PGR engages in the sale of personal and commercial auto insurance as well as residential property insurance. The spread between PGR and its peers’ profit margin has been widening due to its greater agility and peer-leading underwriting segment. This is putting the company in a stronger position to accelerate revenue growth and profitability going forward. STLD is a mini-mill steel producer that mainly serves the U.S. construction markets. The company has been benefitting from the resilience of end-market demand, which has been aided by onshoring activity as well as robust infrastructure spending.

The Fund held a 26.6% 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 January 31, 2023:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 3.5%, 3 year: 9.2%, 5 year: 8.5%, Since Inception (June 19, 2015): 8.2%.
S&P500 Total Return Index: 1 Year: -0.9%, 3 year: 12.7%, 5 year: 11.2%, Since Inception (June 19, 2015): 12.1%.

2Actual investments, first purchased: FIX 11/9/2022, PWR 3/9/2022, MPWR 1/31/2023.

All data is as of February 28, 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: March 16, 2023.

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