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

For the month of November, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “the Fund”) declined -0.9% versus a gain of +4.9% for the S&P 500 Total Return Index (“Index”)1. At the sector level, top performers were Materials, Industrials, and Financials, whereas Consumer Discretionary, Energy, and Health Care were relative underperformers. The market rallied in November following the posting of a lower-than-expected inflation rate, which led investors to expect a slowdown in interest rate hikes by the Federal Reserve and created a more risk-tolerant environment. However, given the defensive positioning of its portfolio and overweight allocations to Consumer Discretionary and Energy, which were relative underperformers, the Fund’s participation in last month’s rally was somewhat muted.

Top performers in the month of November were TJX Companies (“TJX”, +10.8%), MGP Ingredients (“MGPI”, +11.0%), and Motorola Solutions (“MSI”, +8.3%). TJX surged upon exceeding the consensus earnings expectations as it benefited from trade-downs by consumers. MGPI over-delivered on its earnings as it continues to see success in its strategy of transitioning from a third-party distiller to a premium spirits producer. MSI re-rated higher after producing strong earnings that pointed towards improving margins as a result of the company’s shift towards higher-margin video security and command center software solutions.

During the month of November, the Fund initiated positions in TJX Companies (“TJX”), MGP Ingredients (“MGPI”), Texas Instruments (“TXN”), Broadcom (“AVGO”), KLA Corporation (“KLAC”), and Comfort Systems (“FIX”). TJX is the largest off-price retailer in the U.S. selling apparel, footwear, jewellery, sporting equipment, and home goods at prices typically 20-60% below full-price retailers. It operates over 4,700 stores spanning 9 countries under its brands including T.J. Maxx, Marshalls, Winners, Sierra, HomeGoods, and HomeSense. It is set to benefit from trade-down by consumers amidst a slowing economy. MGPI is a producer and supplier of distilled spirits, branded spirits, and food ingredients. The company is focused on shifting its business towards producing brand-name spirits and away from its legacy business of distilling for third parties. Its increased direct market access paired with its distilling expertise, with the backdrop of resilient demand for branded spirits, should facilitate continued margin expansion going forward. TXN designs and manufactures semiconductors for electronics designers and manufacturers globally. It is positioned to benefit from strength in the automotive market as well as resilient demand in industrial, communication, and enterprise systems markets. AVGO is a leader in designing, developing, and supplying a broad range of semiconductor devices globally. It possesses a highly diversified business with a large mix of subsystem solutions relative to other semiconductor companies, which should help navigate the environment with greater stability. Additionally, the company remains fully booked for next year, despite the uncertain environment. KLAC is one of the major suppliers of equipment that is used to fabricate semiconductors. It offers yield management solutions that help improve output and reduce costs. Increasing competition in the semiconductor industry should further solidify the demand for its solutions. FIX is a provider of mechanical and electrical contracting services. It is currently enjoying strong broad-based demand with its management having good visibility into the business with no material signs of a slowdown.

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 November 30, 2022:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 2.5%, 3 year: 9.1%, 5 year: 9.3%, Since Inception (June 19, 2015): 9.3%.
S&P 500 Total Return Index: 1 Year: -4.1%, 3 year: 11.7%, 5 year: 12.1%, Since Inception (June 19, 2015): 12.8%.
²Actual investments, first purchased: TJX 12/10/2018, MGPI 11/10/2022, MSI 1/28/2019.

All data is as of November 30, 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.

Publication date: December 16, 2022.