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

March Recap:

For the month of March, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained 3.0% versus a gain of 3.0% for the S&P 500 Total Return Index (“Index”)¹. From a sector standpoint, Energy, Utilities, and Materials were relative outperformers, whereas, Consumer Discretionary, Real Estate, and Information Technology underperformed.

Top performers in the month of March were Phillips 66 (“PSX”), FTAI Aviation (“FTAI”), and Quanta Services (“PWR”). PSX continued to rerate higher as the company demonstrated continued Refining operational improvements in its recent quarterly results. FTAI is benefitting from a robust demand backdrop as a result of Boeing facing production challenges, which are leading to higher lease rates. PWR continued to perform well since delivering strong earnings recently. 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 modernization support good long-term visibility, as utility customers begin planning multi-year initiatives. Lastly, the company is expected to complete some long-standing projects that were a drag on earnings. As a result, free cash flow generation is expected to improve significantly progressing through this year.

During the month of March, the Fund initiated positions in Monolithic Power Systems (“MPWR”) and Ares Management (“ARES”). MPWR is a designer of semiconductors that make power systems more efficient. Its solutions are used to convert and control the voltages of various electronic systems. The company serves diverse, high-growth end markets, and is expected to benefit from higher content in areas such as data centers, Artificial Intelligence (“AI”), the internet of things, and automotive, which support continued market outgrowth and share gains over time. ARES is a leading alternative asset manager with assets under management of over $350 billion. It is primarily focused on private credit but also manages traditional private equity and real asset funds. We expect continued momentum in its wealth management fundraising channel as the company adds new distribution partners in 2024. Furthermore, the secular theme of the banks retreating from certain lending areas remains intact and should provide support from a longer-term perspective.

For the first quarter of 2024, UDA outperformed its benchmark by 5.9%, with a return of 19.3% versus a return on the Index of 13.5%. Top contributors to the performance were Comfort Systems USA (“FIX”), Eli Lilly and Co (“LLY”), and Broadcom (“AVGO”). 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. LLY performed well as 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. AVGO continued its strong performance as its earnings 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.

The Fund held a 4.8% 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 March 31, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 20.9%, 3 year: 10.6%, 5 year: 11.1%, Since Inception (June 19, 2015): 9.4%.
S&P500 Total Return Index: 1 Year: 29.9%, 3 year: 14.3%, 5 year: 15.3%, Since Inception (June 19, 2015): 14.3%.

2Actual investments, first purchased: PSX 9/12/2023, FTAI 12/5/2023, PWR 5/31/2022.

All data is as of March 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: April 16, 2024.

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