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

October Recap:

For the month of October, the Caldwell U.S. Dividend Advantage Fund (“UDA” or “Fund”) declined -1.6% versus a gain of +0.5% for the S&P500 Total Return Index (“Index”)¹. At the sector level, top performers were Utilities, Information Technology, and Consumer Staples, whereas, Energy, Consumer Discretionary, and Materials were relative underperformers.

Top performers in the month of October were Pioneer Natural Resources (“PXD”), Murphy USA (“MUSA”), and McKesson (“MCK”). PXD’s shares rerated higher as Exxon Mobil agreed to acquire the company in an all-stock deal. The deal represented a premium of approximately 9% to the company’s prior 30-day average share price. MUSA has been benefitting from the volatile macroeconomic environment as greater volatility at higher price levels, in addition to persistent inflationary pressures, continues to pressure consumers. This has led to the more value-seeking consumers to increasingly trade down to MUSA, given the value proposition that it offers. MCK continued to benefit from stable utilization trends among national retail account customers. Furthermore, the company’s strong execution and fundamentals, paired with its attractive earnings per share growth outlook, have supported the company’s multiples to expand.

During the month of October, the Fund initiated positions in UnitedHealth Group (“UNH”), Microsoft (“MSFT”), Booz Allen Hamilton (“BAH”), and CBOE Global Markets (“CBOE”).

UNH is the largest health insurer in the U.S. offering a broad range of products to corporate customers as well as individuals. The company’s scale and diversification ensure a sustainable competitive advantage, while pricing increases going into 2024 should support its margins.

MSFT develops, licences, and sells software, services, and solutions worldwide. The company should continue benefitting from its well-established dominance in the global PC market as well as from its doubling down on the rapidly growing cloud computing market. It is particularly well-positioned for enterprise cloud adoption, considering its immense preexisting customer base.

BAH is involved in the provision of management and technology consulting services. It offers analytics, digital solutions, engineering, and cyber expertise. The company is poised to experience strong revenue growth driven by a robust pipeline of opportunities as indicated by its book-to-bill ratio of approximately 2.4, along with a headcount growth of 11%.

CBOE is the holding company for the Chicago Board Options Exchange, which is one of the world’s largest options exchanges. Its new CEO’s increased focus on managing operating expenses, along with a backdrop of strong demand for index options as well as data and access solutions, should support the company’s share price.

The Fund held a 24.8% 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 October 31, 2023:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: -7.1%, 3 year: 6.8%, 5 year: 7.7%, Since Inception (June 19, 2015): 7.1%.
S&P500 Total Return Index: 1 Year: 12.1%, 3 year: 11.9%, 5 year: 12.3%, Since Inception (June 19, 2015): 12.2%.

2Actual investments, first purchased: PXD 2/27/2017, MUSA 10/14/2021, MCK 7/21/2022.

All data is as of October 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: November 15, 2023.

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