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

November Recap:

For the month of November, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) gained +1.9% versus a gain of +6.6% for the S&P500 Total Return Index (“Index”)¹. At the sector level, top performers were Real Estate, Information Technology, and Financials, whereas Energy, Utilities and Consumer Staples were relative underperformers.

Top performers in the month of November were Microsoft (“MSFT”), Mastercard (“MA”) and Ares Management (“ARES”). MSFT re-rated higher following strong earnings that were driven by their dominant position in the global cloud computing market. It is the only company seeing a material growth benefit from artificial intelligence adoption among the three major hyper-scale cloud players. Despite slowing economic growth, MA continues to benefit from robust consumer card-based spending, including particular strength in travel-related purchases post-COVID. ARES is benefiting from “de-banking” trends, where increased risk aversion in the banking sector has driven would-be bank borrowers towards private credit markets. ARES has been a long-time leader in the private credit space and is expected to benefit from strong inflows over the next few years as institutional investors increase allocations to the asset class.

During the month of November, the Fund initiated positions in Comfort Systems (“FIX”), Tetra Tech (“TTEK”), Transunion (“TRU”), Bentley Systems (“BSY”), Texas Instruments (“TXN”) and Federal Agricultural Mortgage Corp (“AGM”). FIX is a leading U.S. based mechanical and electrical contractor specializing in installing, repairing and maintaining heating, ventilation, air conditioning (“HVAC”), plumbing, and electrical control systems. Megatrends such as manufacturing re-shoring and datacenter buildouts are driving significant backlog growth, and a strong uptick in employee utilization supports expanding margins. TTEK is a leading provider of consulting and engineering services to government and private sector clients with a specific focus on water, environmental and efficient building projects. In recent years, multi-year infrastructure stimulus packages have been enacted around the globe which is driving strong backlog growth and solid medium to long term revenue visibility. Additionally, the firm is moving into higher value applications and projects which supports margin expansion over time. Lastly, we believe TTEK will continue to drive additional growth through acquisitions given a fragmented market, clean balance sheet and a solid integration track record. TRU is a global provider of data and insights to banks and alternative lenders, credit card issuers and retailers, among others. While spending on core products by key lending customers is subdued, TRU is lessening the impact by leveraging alternative datasets to expand wallet share. The company also continues to expand their total addressable market by expanding their offering to new customer and geographic segments. BSY is an infrastructure engineering software provider. They continue to benefit from the same high level drivers as TTEK, particularly as U.S. state Departments of Transportation standardize on the software. A re-vamped revenue model helps BSY receive better compensation for their higher-value products and the international market is still relatively underpenetrated suggesting a long growth runway. TXN is a provider of analog semiconductor chips used in a wide range of end markets globally. We believe TXN is making necessary investments to maintain resiliency and capitalize on an accelerated long term growth outlook. While there will be some (well-understood) negative margin impacts, we believe TXN’s self-reliance was a key driver of its outperformance throughout COVID and highlights the kind of management teams we look for. AGM provides a secondary market for agricultural real estate loans, purchasing them from primary lenders. Similar to ARES, the company should also benefit from “de-banking” trends as traditional lenders pull back from the agricultural lending market and AGM purchases loans at increasingly attractive spreads.

The Fund held a 9.7% 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 November 30, 2023:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: -4.5%, 3 year: 4.9%, 5 year: 7.5%, Since Inception (June 19, 2015): 7.3%.
S&P500 Total Return Index: 1 Year: 13.9%, 3 year: 11.4%, 5 year: 13.0%, Since Inception (June 19, 2015): 12.9%.

2Actual investments, first purchased: MSFT 2/2/2023, MA 1/9/2023, ARES 9/14/2023.

All data is as of November 30, 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: December 14, 2023.

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