Month End Recap:
For the month of September, the Caldwell U.S. Dividend Advantage Fund (UDA or Fund) gained 1.2% versus a gain of 2.4% for the S&P 500 Total Return Index (Index). From a sector standpoint, Consumer Discretionary, Utilities, and Communication Services were relative outperformers, whereas Energy, Healthcare, and Financials underperformed.
Top performers in the month of September were PulteGroup (PHM), Vertiv Holdings (VRT), and Carrier Global (CARR). PHM continued its momentum from having reported a robust quarter, with earnings per share growing by 19%, driven by increases in closings, average sales prices, and gross margins. The company’s strong cash flows have allowed it to reinvest in growth while returning capital to shareholders, and its ability to navigate the current housing market’s challenges highlights its operational efficiency. VRT performed well likely due to investors continuing to appreciate the potential upside to the company’s long-term growth guidance driven by robust hyperscale datacenter capital spending. Furthermore, its ongoing deleveraging continues to support potential credit rating upgrades. Investors developed a positive sentiment toward CARR as the distributor channel destocking on the residential side in North America is largely over, which had been negatively impacting the company’s volumes.
During the month of September, the Fund initiated positions in KKR & Co (KKR), Oracle (ORCL), Vertiv Holdings (VRT), Resmed (RMD), Equifax (EFX), Heico (HEI), and Nasdaq (NDAQ).
KKR is a leading global asset management firm offering services in alternative asset management, capital markets, and insurance solutions. The firm is well positioned for increased capital deployments.
ORCL is a leading global provider of database management systems and enterprise application software. The company is experiencing strong demand tailwinds as well as efficiency gains from its transition to cloud based offerings.
VRT is global leader in cooling products that ensure the smooth, consistent operation of data centers, communications networks and other industrial processes. We expect upside to the company’s long-term growth guidance driven by robust hyperscale datacenter capital spending, which we are already seeing play out in the form of significant backlog growth in AI related projects.
RMD is a global leader in the development and marketing of medical devices used to treat sleep apnea and other respiratory conditions. Its products include PAP (Positive Air Pressure) machines and consumables such as masks and dental devices. A large proportion of the global population, estimated at 1 billion, is believed to have undiagnosed sleep apnea. This enormous total addressable market with only 20-25% of the cases diagnosed and treated highlights the long runway ahead of the company. We believe the recent emergence of weight-loss drugs should lead to increased awareness as sleep apnea is commonly associated with obesity, which would translate into growing demand for the company.
EFX is a global data and analytics company providing information solutions to businesses, governments and consumers along with human resource business process automation and outsourcing services for employers. Its client base includes financial institutions, government agencies, mortgage lenders, telecommunications and individuals. The lowering of interest rates bodes well for a recovery in the mortgage market, which positions the company to generate incremental sales and earnings growth over the following quarters.
HEI specializes in manufacturing electronic equipment for the aviation, defence, space, medical, telecommunications, and electronics industries. The company is successfully capturing a growing market share in the expanding area of Aerospace aftermarket approved parts.
NDAQ is a holding company that provides trading, clearing, exchange technology, regulatory, and listing services through three segments: Capital Access Platforms, Financial Technology, and Market Services. The company should experience cost synergies from its acquisition of Adenza, a provider of mission-critical risk management, regulatory reporting, and capital markets software to the financial services industry. It should also benefit from an anticipated recovery in the IPO (Initial Public Offering) market.
For the third quarter of 2024, UDA gained 2.4% versus a gain of 4.5% for the Index. Top contributors to the performance were FTAI Aviation (FTAI), PulteGroup (PHM), and Tetra Tech (TTEK). FTAI continued its upward trajectory, with a 30% increase in its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) in the recent quarter, bolstered by strong demand in its leasing and aerospace products segments. The company’s ability to control costs and optimize margins, along with raising its EBITDA estimates, has driven positive sentiment among investors, contributing to the stock’s continued strength. PHM was also a top performer in the month of September and was already discussed in the monthly section above. TTEK delivered strong quarterly results driven by increased demand for high end consulting services, particularly in environmental and water treatment projects. The company’s strategic focus on front-end advisory and consulting work led to margin expansion, improving overall profitability. Additionally, the strong backlog in key business segments supported robust revenue performance.
The Fund held a 2.4% 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 September 30, 2024:
Caldwell U.S. Dividend Advantage Fund (Series F): 1 Year: 27.6%, 3 year: 10.1%, 5 year: 10.8, Since Inception (June 19, 2015): 9.4%.
S&P500 Total Return Index: 1 Year: 36.2%, 3 year: 14.3%, 5 year: 16.4%, Since Inception (June 19, 2015): 14.6%.
2Actual investments, first purchased: PHM 2/2/2023, VRT 5/16/2024, CARR 7/12/2024.
All data is as of September 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: October 18, 2024.