Month End Recap:
For the month of November, the Caldwell U.S. Dividend Advantage Fund (UDA or Fund) gained 6.2% versus a gain of 6.3% for the S&P 500 Total Return Index (Index). From a sector standpoint, Consumer Discretionary, Financials and Industrials were relative outperformers, whereas Healthcare, Materials and Communication Services underperformed.
Top performers in the month of November were FTAI Aviation (FTAI), Comfort Systems (FIX) and KKR & Co (KKR). FTAI rallied after delivering strong earnings and raising its full-year guidance. Ongoing disruptions in the aerospace supply chain and production issues at Boeing drove strong demand for its aerospace products, which are sold on a stand-alone basis and used in major aircraft engine overhauls. Given the company’s industry-leading costs and shorter engine overhaul times, we believe demand will remain robust as more airlines recognize the value of their services. FIX also delivered robust earnings, with management expressing optimism about the demand environment and expecting the backlog to return to growth and reach record highs within the next few quarters. Their initial guidance for growth in 2025 also stood above analysts’ expectations and good visibility into customers’ design pipelines provides confidence in continued demand strength over the medium to long term. KKR’s earnings also demonstrated strength, driven by strong performance across multiple funds, including newer areas such as infrastructure, and a cyclical rebound in core private equity and real estate. Lower interest rates, diminished election uncertainty, and expectations of a less restrictive regulatory environment under the Trump administration should support the recovery of cyclically depressed markets. To that end, management noted a robust mergers and acquisitions (M&A) pipeline, reflecting increased confidence among companies in pursuing M&A activity.
During the month of November, the Fund initiated positions in AAON Inc. (AAON) and Hamilton Lane (HLNE). AAON is a manufacturer of customized Heating, Ventilation, and Air Conditioning (HVAC) equipment for commercial and industrial end markets. The company is benefiting from data center customers rapidly building out AI server clusters with cooling requirements that are not met by off the shelf solutions. Additionally, competitor price increases in recent years have narrowed AAON’s price premium. Coupled with its industry-leading quality, this has strengthened the company’s competitive position and is expected to drive market share gains moving forward. HLNE is an alternative investment management firm offering private markets advisory, analytics solutions, and asset management services. It specializes in designing, structuring, managing, and monitoring portfolios of private market funds and direct investments for its clients. The company benefits from strong demand as a unique way to capitalize on the secular growth of alternative asset investments. It has seen significant adoption of its traditional private equity-like products, particularly “evergreen” funds, which target the retail wealth management channel. This has driven rapid growth in fee-earning assets under management, with evergreen products now accounting for approximately 10% of total assets, compared to none just a few years ago. The continued rollout and scaling of additional evergreen products bodes well for sustained growth in fee-related earnings.
The Fund held a 10.6% 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, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 37.9%, 3 year: 10.5%, 5 year: 11.3, Since Inception (June 19, 2015): 10.1%.
S&P500 Total Return Index: 1 Year: 38.3%, 3 year: 14.7%, 5 year: 17.0%, Since Inception (June 19, 2015): 15.4%.
2Actual investments, first purchased: FTAI 12/05/2023, FIX 11/9/2022, KKR 9/19/2024.
All data is as of November 30, 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: December 19, 2024.