July 2021 | Caldwell U.S. Dividend Advantage Fund Commentary

The Caldwell U.S. Dividend Advantage Fund Series F (“UDA”) gained 3.7% in the month of July vs. 3.2% for the S&P 500 Total Return Index (“Index”)¹. Markets continued to move higher with the economic reopening in spite of concerns surrounding the Delta variant. While it appears more contagious than earlier strains, hospitalizations have stayed low and the U.S. vaccination rate is high, suggesting further lockdowns in the U.S. are unlikely. Supply chain bottlenecks and inflation remain the top challenge for management teams, somewhat countering strong end-market demand. Second quarter earnings results were particularly strong with nearly 90% of companies in the Index beating estimates on the top and bottom lines.

Top contributors to UDA performance in July were Alimentation Couche-Tard Inc. (“ATD.B”; +10.6%), Tetra Tech Inc. (“TTEK”; +10.3%) and Broadridge Financial Solutions (“BR”; +8.3%)².

ATD.B is one of the largest convenience store (“c-store”) and fuel retailers in North America with over 16,000 locations. Fuel margins remain elevated despite recovering volumes on reopening economies. A recent analyst day provided additional detail on organic growth and margin initiatives, as well as laid out medium term fuel margin targets that were above analyst estimates. Lastly, management remains active on the acquisition front and continues to express interest in adjacent areas such as quick service restaurants, grocery retail and dollar stores. While these are outside of Couche Tard’s core c-store/fuel business, management has a strong track record of shareholder value creation. These events, combined with multiple sell-side rating upgrades, gave investors increasing confidence in the company’s long term outlook.

TTEK is a leading provider of consulting and engineering services to government and private sector clients with a focus on water and environmental projects. The Biden Administration has placed a high priority on investment in these areas which has led to an accelerated growth outlook over the medium term. Additionally, the mix continues to shift to more profitable services, driving margin expansion. While some work remains on pause due to lingering travel restrictions, the resumption of stalled projects continues to improve across most end markets. Lastly, M&A could be a further catalyst for the stock, with management noting ample balance sheet capacity and a strong pipeline of opportunities that would be accretive to earnings.

BR provides products and services aimed at streamlining investor relations and back office operations in the financial service industry. The stock moved higher as investors began to appreciate the upside in BR’s latest acquisition, Itiviti Holding. In addition to being accretive to earnings in year one, the deal accelerates organic growth and will provide cross sell opportunities with existing clients. Additionally, the business lifts Broadridge’s mix of recurring revenue which should driver greater earnings stability over time.

The Caldwell U.S. Dividend Advantage Fund seeks to provide investors with a combination of attractive monthly income as well as the potential for long-term capital appreciation. Given its focus on high quality companies with compelling valuations and good prospects for sustained business and dividend growth, we believe UDA will continue to offer investors an attractive solution for navigating both through the current market and beyond COVID.

¹Standard performance as at July 31, 2021:

Caldwell U.S. Dividend Advantage Fund Series F: 1 Year: 19.4%, 3 year: 11.6%, 5 year: 10.7%, Since Inception (June 19, 2015): 10.0%.

S&P500 Total Return Index: 1 Year: 27.2%, 3 year: 16.5%, 5 year: 16.3%, Since Inception (June 19, 2015): 15.3%.

²Actual investments, first purchased: ATD.B 9/3/2020, TTEK 9/25/2020 and BR 7/30/2020.

All data is as of July 31, 2021 sourced from Morningstar Direct, 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: August 17, 2021.