February 2024 | Caldwell U.S. Dividend Advantage Fund Commentary

February Recap:

For the month of February, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) outperformed its benchmark, the S&P500 Total Return Index (“Index”)¹, by 5.3%, with a return of +12.2% versus a return on the Index of +6.9%. At the sector level, top performers were Consumer Discretionary, Industrials, and Materials, whereas, Utilities, Consumer Staples and Real Estate were relative underperformers.

Top performers in the month of February were Comfort Systems USA (“FIX”), Quanta Services (“PWR”) and Eli Lilly (“LLY”). FIX benefited from strong earnings. Demand is extremely robust, particularly from large-scale cloud computing providers, which contributed to a record backlog. Given the backlog and strong demand environment, FIX has good visibility into future revenues and is in a position to pick and choose the most profitable projects, contributing to strong profitability. Similar to FIX, PWR also delivered strong earnings. The company continues to see robust demand for renewable energy projects, noting a record backlog in the segment. Underlying secular drivers like grid hardening and grid modernization support good long-term visibility as utility customers begin planning multi-year initiatives. Lastly, the company is expected to wrap up some long-standing projects that were a drag on earnings. As a result, free cash flow generation is expected to improve significantly in 2024. Given a strong track record of dividend growth and mergers & acquisitions, we believe PWR will have ample firepower to return capital to shareholders while pursuing accretive acquisitions. For LLY, demand for its blockbuster weight-loss drug continues to outpace supply as a result of capacity constraints. However, availability should improve throughout 2024 as new manufacturing capacity comes online. Overall, we see a long growth runway and continued support for the stock’s multiple re-rating given popular in-production new products as well as other promising drugs in the pipeline.

The fund did not initiate any new positions in the month of February.

The Fund held a 2.3% 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 February 29, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 19.3%, 3 year: 11.4%, 5 year: 9.4%, Since Inception (June 19, 2015): 7.7%.
S&P500 Total Return Index: 1 Year: 30.0%, 3 year: 14.5%, 5 year: 15.4%, Since Inception (June 19, 2015): 13.3%.

2Actual investments, first purchased: FIX 11/9/2022, PWR 5/31/2022, LLY 9/14/2023.

All data is as of February 29, 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: March 13, 2024.

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