Month End Recap:
For the month of June, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained +2.0% versus a gain of +4.0% for the S&P 500 Total Return Index (“Index”)1. From a sector standpoint, Information Technology, Consumer Discretionary, and Communication Services were relative outperformers, whereas, Utilities, Materials, and Energy underperformed.
Top performers in the month of June were Broadcom (“AVGO”), FTAI Aviation (“FTAI”), and Eli Lilly (“LLY”). AVGO exceeded quarterly earnings expectations, driven by strong software performance and better-than-expected semiconductor sales. The company raised its annual guidance, with significant increases in Artificial Intelligence (“AI”) related revenues due to rising demand in networking and Application-Specific Integrated Circuits. Its VMware acquisition is anticipated to soon start contributing significantly, and gross margins remain stable, supported by software growth. Additionally, the announcement of a 10:1 stock split further supported investor confidence. FTAI has been rising due to its strong financial performance and a positive outlook for its Leasing and Aerospace Products segments. Recently, the company secured a key perpetual power agreement with LATAM Airlines, indicating robust future revenue potential. Consistent dividend payments and strategic investments further boost investor confidence. These factors, coupled with operational efficiency and high demand for their innovative engine solutions, have contributed to the stock’s upward momentum. LLY has been rerating higher after its last quarterly earnings, driven by strong demand for its products, particularly GLP-1 therapies, despite supply constraints. The company has been proactive in addressing these constraints and raised this year’s revenue guidance by $2 billion, signaling confidence in overcoming current challenges and achieving future growth. Additionally, anticipated improvements in manufacturing capacity, strategic pricing, and potential new product formats in the U.S. further boosted investor optimism.
During the month of June, the Fund initiated positions in Xylem (“XYL”) and Intuit (“INTU”). XYL is a leading water technology company. It is the largest publicly traded pure play water equipment manufacturer, with key segments in Water Infrastructure, Applied Water, and Measurement & Control Solutions. The company primarily serves public utilities, commercial, residential, industrial, and irrigation markets, and includes the Sensus metering business and a software analytics platform. It has been demonstrating robust organic revenue growth, driven by strong performance in its Measurement & Control Solutions segment and solid demand across Water Infrastructure. Despite some pressure in Applied Water, overall core orders and backlog have increased, indicating strong future prospects. The company also achieved substantial margin expansion, particularly in Measurement & Control Solutions, showcasing improved profitability. Given the healthy backlog, strong bookings momentum, and effective execution, the company is attractively positioned for continued growth and profitability. INTU provides financial management and compliance products for consumers, small businesses, self-employed individuals, and accounting professionals globally. It operates through four segments: Small Business & Self-Employed, which includes QuickBooks and Mailchimp services; Consumer, which offers TurboTax products; Credit Karma, which provides a personal finance platform; and ProTax, which includes tax-preparation software. The company presented an attractive buying opportunity due to its strategic restructuring and investment shift. The announcement of reduction in workforce by approximately 10% as well as facility closures will allow the funding of key growth areas such as AI, the expert ecosystem, and the money platform, enhancing workflow and expanding services. These changes are expected to improve operating margins and drive sustained growth, even in challenging economic conditions.
For the second quarter of 2024, top contributors to the performance were FTAI, AVGO, and LLY. All three of these companies were also the top performers in the month of June and were already discussed in the monthly section above.
The Fund held an 8.7% 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 June 30, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 22.3%, 3 year: 10.0%, 5 year: 10.9%, Since Inception (June 19, 2015): 9.4%.
S&P500 Total Return Index: 1 Year: 28.8%, 3 year: 13.7%, 5 year: 16.1%, Since Inception (June 19, 2015): 14.5%.
2Actual investments, first purchased: AVGO 11/15/2022, FTAI 12/5/2023, LLY 9/14/2023.
All data is as of June 30, 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: July 18, 2024.