May 2023 | Caldwell U.S. Dividend Advantage Fund Commentary

May Recap:
For the month of May, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) declined -1.9% versus a gain of 0.7% for the S&P500 Total Return Index (“Index”)¹. At the sector level, top performers were Information Technology (“IT”), Communication Services, and Consumer Discretionary, whereas, Energy, Materials, and Consumer Staples were relative underperformers. IT was the strongest-performing sector in the Index. Investors’ heightened interest in the IT sector has been fueled by the Artificial Intelligence (“AI”) boom that is currently underway, which was triggered by the launch of ChatGPT and the unprecedented momentum that it generated, as more and more companies have been investing in and increasing their commitments towards incorporating AI in their businesses and products.

Top performers in May were Broadcom (“AVGO”, +29.2%), Microsoft (“MSFT”, +7.3%), and Quanta Services (“PWR”, +4.9%). AVGO’s share price appreciated against a positive backdrop for a subset of semiconductor companies that are set to benefit from the increased AI-related spending. MSFT rerated higher as the market continued to appreciate that MSFT is the leading and the most logical foundation for others to build their new AI applications on, which should cement its favourable positioning to benefit from the generative AI boom. PWR rerated higher as the U.S. debt ceiling deal will accelerate the permitting process for some energy projects, additionally, the company continues to see strong demand for its infrastructure solutions for the energy transition.

During the month of May, the Fund initiated a position in Vontier (VNT). VNT is a leading provider of fuel dispensers and point-of-sale payment systems to retail gas stations and corner stores; automatic car wash software and hardware; and other mobility-related solutions. The company has been undergoing a growth slowdown due to lapping heightened sales in its retail fueling business, which has resulted in a valuation gap relative to its peers. These headwinds should abate and the company should experience accelerating top-line growth, which should result in the stock rerating higher to close the peer valuation gap.

The Fund held a 6.4% 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 May 31, 2023:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 4.5%, 3 year: 7.1%, 5 year: 8.0%, Since Inception (June 19, 2015): 7.9%.
S&P500 Total Return Index: 1 Year: 10.6%, 3 year: 12.3%, 5 year: 12.1%, Since Inception (June 19, 2015): 12.5%.

²Actual investments, first purchased: AVGO 11/1/2018, MSFT 7/20/2016, PWR 3/9/2022.
All data is as of May 31, 2023 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: June 13, 2023.