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

January Recap:

For the month of January, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained 3.3% versus a gain of 3.0% for the S&P500 Total Return Index (“Index”)¹. At the sector level, top performers were Information Technology, Financials, and Communication Services, whereas, Utilities, Consumer Discretionary, and Real Estate were relative underperformers.

Top performers in the month of January were Booz Allen Hamilton (“BAH”), Eli Lilly (“LLY”), and Broadcom (“AVGO”). BAH’s stock surged as the company exceeded its quarterly earnings expectations by a wide margin. Its Civil Client business segment is driving strong growth, with a particular focus on digital transformation, cyber and Artificial Intelligence (“AI”) across its portfolio. The company’s margins are also ahead of its long-term targets, driven by greater operational efficiency as well as positive outcomes from strategic investments in talent and capabilities. LLY rerated higher as its diabetes and weight-loss drugs, Mounjaro and Zepbound, showed early success and led to market share gains. This fueled optimism, prompting investors to raise their earnings outlook for the company as it continues to launch these drugs outside the U.S. throughout this year. AVGO’s strong performance was a continuation of its performance in the prior month following the company’s earnings release, which demonstrated that the growth in AI is limiting the impact of a slowdown in semiconductors. The tailwind is likely to continue as the company’s AI sales are on track to potentially double by the end of this year.

During the month of January, the Fund initiated a position in Applied Materials (“AMAT”). AMAT is a leading designer and manufacturer of semiconductor process equipment, primarily serving global semiconductor fabricators and device manufacturers. A strong industry growth outlook, supported by secular demand in the underlying semiconductor industry, should translate to robust growth for the company, as it is a market-leading supplier for multiple steps in the process of manufacturing semiconductor equipment. Its diversified exposure to different semiconductor end markets reduces the risk of underperformance in singular markets. Furthermore, the company maintains a strong moat as a result of its intellectual property and high switching costs, which should curb competition from new entrants that are attracted by the currently favourable fundamentals of the semiconductor industry.

The Fund held a 7.2% 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, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 6.6%, 3 year: 7.2%, 5 year: 9.4%, Since Inception (June 19, 2015): 7.7%.
S&P500 Total Return Index: 1 Year: 21.0%, 3 year: 12.7%, 5 year: 14.7%, Since Inception (June 19, 2015): 13.3%.

2Actual investments, first purchased: BAH 10/31/2023, LLY 9/14/2023, AVGO 11/15/2022.

All data is as of January 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: February 14, 2024.

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