March 2022 | Caldwell U.S. Dividend Advantage Fund Commentary

For the month of March, the Caldwell U.S. Dividend Advantage Fund (“UDA”) gained 1.5% versus a gain of 2.1% for the S&P 500 Total Return Index (“Index”)¹. Utilities, Energy and Real Estate were top performing sectors, while Financials, Communication Services and Consumer Staples were relative underperformers. Global shortages and Russia’s ongoing invasion of the Ukraine supported higher energy prices, which led to strength in the Energy sector. The Fund benefited during the month from an overweight position in the Energy sector relative to its benchmark. However, overall returns lagged the Index, in part, due to a significant underweighting in Utilities and Real Estate.

Utilities tend to outperform during periods of heightened market volatility and increased concerns over slowing economic growth.  In addition, the defensive characteristics of real estate stocks/real estate investment trusts (“REITS”) led to increased fund flows into that sector. Despite the short-term investor support realized in these sectors, we continue to see more attractive total return potential in securities which are both underpinned by positive long-term fundamentals and are undergoing a positive market re-rating, particularly in the Energy and Industrials sectors at the current time.

Top contributors to UDA performance in March were Coterra Energy (“CTRA”, +16.2%), Fastenal (“FAST”, +13.7%) and UnitedHealth (“UNH”, +5.8%)². Operational changes made a year ago are driving greater efficiency out of CTRA’s wells which, in combination with higher oil prices, should lead to improved cash flows. Sales at FAST continued to recover exiting the pandemic, which was consistent with a general strengthening in the manufacturing industry. This was further evidenced by the Purchasing Managers’ Index holding above 50 points, signifying a bullish sentiment in the manufacturing sector. UNH continues to benefit from its early efforts to integrate all aspects of patient care under one roof. Medicare Advantage reimbursement rates for 2023 came in higher than expected, which should provide a boost for managed care providers, especially UNH as the Medicare Advantage market leader.

During the Month of March, the Fund initiated a position in EOG Resources. EOG is one of the largest crude oil and natural gas exploration and production companies in the U.S. The company has a “best in class” balance sheet and consistent track record of improving its cost structure. Cost visibility is solid through 2022 with nearly 50% of well costs secured, which helps to mitigate the adverse effects of potential inflationary pressure. Similar to the Fund’s other Energy holdings, EOG is placing a greater focus on metered supply growth and improving shareholder returns. To that end, its most recent quarterly results recorded an 80%+ increase in the company’s base dividend rate. We consider this dividend increase to be consistent with the company’s history of accelerated dividend growth and supportive of EOG’s commitment to growing their underlying business and shareholder dividends over time.

Rising rates and inflation continue to dominate the market narrative, especially since the former poses a risk to higher multiple stocks that currently have an outsized weighting in major market benchmarks. However, 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 dividend growth investing, which has been foundational to the Fund’s investment approach, will continue to provide a means of generating compelling risk-adjusted returns for our investors over the long term.

¹Standard performance as at March 31, 2022:
Caldwell U.S. Dividend Advantage Fund Series F: 1 Year: 7.9%, 3 year: 10.7%, 5 year: 8.3%, Since Inception (June 19, 2015): 9.0%.
S&P500 Total Return Index: 1 Year: 14.9%, 3 year: 16.3%, 5 year: 14.5%, Since Inception (June 19, 2015): 14.4%.

²Actual investments, first purchased: CTRA 10/14/2021, FAST 11/2/2020, UNH 12/2/2015.

All data is as of March 31, 2022 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.