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July 2017 | The Past is Prologue

The Past is Prologue

William Shakespeare, in his play The Tempest, uses the statement “The Past is Prologue” to suggest that all the events that have happened before have presented us with the opportunity we now face. Simply put, history sets the context for the present. Yet, in this world of instant gratification, few investors anchor their expectations using history as a guide.


What is the fair value of the Canadian dollar? Why would policy makers of an export led economy desire a stronger currency? With private debt to Gross Domestic Product (“GDP”) close to 180%, won’t higher interest rates hurt economic growth? Will policy makers be able to generate a soft landing in the real estate market? Meaning, the real estate bubble will pop without generating a significant decline in housing prices. We are entering a new phase in the commodity super cycle. All of the above questions communicated by many pundits over the past few weeks implicitly assume that the basic laws of economics don’t apply to the Canadian economy. We beg to differ.


Remember last year, the global economy was dealing with the crash of prices in the commodity complex. In Canada, wild fires in Alberta added to the problem by forcing a shut down of oil production. The fires in Fort McMurray were a major international story. Yet today, few anchor their expectations about the future on this fact.

The Canadian dollar has rallied over the past few months. The Bank of Canada is claiming victory from the appreciation of the Canadian dollar, caused by the recent interest rate hike. The Canadian dollar has now reached a point where one of the world’s most efficient railroads, the Canadian National Railway (“CN”), stated in its quarterly report that the strength of the Canadian dollar is now a headwind for economic growth. As the economy enters into a period where data gets normalized, those bullish expectations will subside. Looking at the Citigroup Economic Surprise Index, we can see that investors have extremely bullish expectations about the Canadian economy, while having extremely bearish views about the U.S. economy. Mathematics suggests that those expectations should reverse as we get into the fall.


The Bank of Canada has a single mandate: to target inflation. Data released in July 2017 revealed that inflation was at a 20-month low. Fundamentals suggest that the Canadian economy is lapping very easy comparisons, meaning growth looks better than it actually is in Canada, an additional point that CN makes in its quarterly report. Furthermore, basic economic theory suggests that an appreciating dollar is deflationary. So while all the cheerleaders are happy about the strong Canadian dollar, international investors most likely see Canada in a more objective light. The Canadian economy has had the benefit of two super cycles, one in commodities and other in real estate. To many observers, it looks like the Bank of Canada is targeting the real estate bubble. Popping the real estate bubble will not come without consequences, a decline in real estate prices will have a negative effect on economic growth. Some may suggest that the housing bubble can be popped without a decline in housing prices, however we do not see any evidence to support this. In theory, it could happen, but practically speaking, assuming an economy with private debt to GDP of 180% will not see a significant decline in economic growth in light of a decline in housing prices is a very dangerous position to hold.


The Bank of Canada raised interest rates. Was it justified? Were they targeting the real estate market? Is an appreciating currency good for an export led economy? Why are the rest of the world’s central bankers concerned about being below their inflation targets? The Bank of Canada is sure that the long shadow of the global financial crisis and secular stagnation has been defeated. Retail sales (not including the automotive sector) that were reported in July 2017 were negative. Job growth in Ontario was negative. Yet, the Governor of the Bank of Canada, Stephen Poloz, and his team are claiming victory. The Bank of Canada may just be taking back the two emergency cuts they did when oil crashed. Governor Poloz acted as Governor John Crow did to pop the housing bubble in the early 1990’s. Real estate prices declined by 50% at that time and Canada went into a recession. Instead of acting as cheerleaders, many pundits should be sounding the alarm bells. A major policy mistake is at hand. Canada is no longer competitive in manufacturing on a cost basis with the southern United States and Mexico. Canada has just experienced the benefits of two super cycles, commodity and real estate. A strong Canadian dollar is the last thing the Canadian economy needs at this juncture.


It seems that many in Canada don't think that cycles repeat, fundamentals do matter and policy mistakes can happen. Shakespeare was right, The Past is Prologue, but only for those that take a moment and reflect.

Accredited Investors Only

The Fund is available on a private placement basis only to residents of Canada who are qualified “Accredited Investors” as defined under National Instrument 45-106 Prospectus Exemptions and who are resident in Canada. This material is for information purposes only and does not constitute an offering memorandum or an offer or solicitation in any jurisdiction in which an offer or solicitation is not authorized. Please read the Fund’s Offering Memorandum before investing. Prospective investors should rely solely on the Offering Memorandum which outlines the risk factors in making a decision to invest. The indicated rates of return are historical annual compounded total returns net of fees and expenses paid by the Fund, including changes in unit value and reinvestment of all distributions, but do not take into account sales charges or income taxes payable by any security holder that would have reduced returns. Investments in the Fund are not guaranteed, their values change frequently and past performance may not be repeated. Investment losses do and may occur, and investors could lose some or all of their investment in the Fund. The information herein does not consider the specific investment objectives, financial situation or particular needs of any prospective investor. No assurance can be given that the Fund’s investment objective will be achieved or that investors will meet their investment goals. Prospective investors should consult their appropriate advisors prior to investing. Information presented herein is obtained from sources we believe reliable, but we assume no responsibility for information provided to us from third parties. Caldwell Securities Ltd. and Caldwell Investment Management Ltd. are wholly-owned subsidiaries of Caldwell Financial Ltd. Officers, directors and employees of Caldwell Financial Ltd. and its subsidiaries may have positions in the securities mentioned herein and may make purchases and/or sales from time to time. This information may not be reproduced for any purpose or provided to others in whole or in part without the prior written permission of Caldwell Investment Management Ltd. All information and opinions indicated herein are subject to change without notice. Inception date: September 15, 2016.

July 2017 | Caldwell Canadian Value Momentum Fund Commentary

Update on the Caldwell Canadian Value Momentum Fund

July 2017 1 Year 3 Year 5 Year Since Inception*
Caldwell CDN Value Momentum Fund “CCVMF” -1.4% 12.0% 6.4% 13.4% 11.2%
S&P/TSX Composite Total Return Index -0.1% 6.8% 2.6% 8.6% 6.1%

*Compounded Annual Return since August 15, 2011.

July Recap:

The Fund declined 1.4% in July versus a loss of 0.1% for the S&P/TSX Composite Total Return Index ("Index”). While the Fund's holdings performed in line with their respective sectors, the Fund's overweight positions in the Industrial and Consumer sectors weighed on results as these sectors under-performed the broader market. We also suspect that currency had an impact - CCVMF stocks that outperformed the Index averaged ~70% of their revenue from Canada while those that underperformed generated less than 40% of their revenue from Canada. Given the Canadian dollar’s strength since mid May, the translational impact of currencies on earnings has a greater effect on this latter group.

 

Top CCVMF performers in July were People Corp. (+19.0%) and Cogeco Inc. (+13%). People reported a very strong quarter with organic growth of 16% which significantly outpaced expectations. Organic growth was driven by new client wins in their Third Party Administration vertical. Cogeco earnings also beat expectations, driven by better-than-expected performance in their Canadian division. The shares continue to trade at a discount to their sum-of-parts net asset value calculation.

 

Two stocks were added to the portfolio in July: WSP Global (WSP) and AGF Management (AGF). WSP has evolved from a pure Canadian company to a global engineering power-house focused on the higher growth Buildings, Transpiration and Infrastructure verticals. The company is also focused on countries with good long-term infrastructure spending programs (Canada, U.S., Australia, Nordics and pockets of Latin America). While federal spending is taking longer to play out, municipal and state/provincial projects have already begun as finances have improved from recessionary lows. Margins should continue to move higher and there continues to be good opportunities to build out its global capabilities given the highly fragmented nature of the industry. After years of struggling with negative fund flows, AGF seems to have hit an inflection point as investment flows and fund performance have improved. There have been significant changes in key management roles, including new heads of finance, investing, marketing and human resources. The company has also made good progress diversifying its business away from the fee-pressured Canadian mutual fund space. We believe these positive developments will drive AGF's valuation multiples closer to peers versus the large discounts the stock trades at today.

 

The Fund held a 4% cash weighting at month end. We look forward to tracking the progress of the portfolio’s holdings as we see a meaningful and diverse set of catalysts to drive continued growth.

 

We thank you for your continued support

 

The CCVMF Team

The information contained in this report is designed to provide you with general information related to investment alternatives and strategies and is not intended to be comprehensive investment advice applicable to the circumstances of the individual. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. The indicated rates of return are the historical annual compounded total returns including changes in share and/or unit value and reinvestment of all dividends and/or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Inception Date: August 15, 2011. Principal Distributer: Caldwell Securities Ltd.

June 2017 | Caldwell US Dividend Advantage Fund Report

 

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June 2017 | Caldwell Balanced Fund Commentary

Portfolio Additions

SunOpta (soy-t)

About the Company: SunOpta is a leading provider of organic and non-GMO consumer food and ingredients in North America. Customers include Kirkland (Costco’s private label), McDonalds, Loblaw, Gerber, Cliff Bards, Frito Lay, Blue Diamond, Hain Celestial and Chobani. The business is a product of 30+ acquisitions since 1999 that were never effectively integrated, and recent operational missteps prompted the Board to conduct a strategic review of the business.
Investment Thesis: We expect the share price to move meaningfully higher on the following:

  1. New Management: A new management team has been assembled that includes the appointment of a CEO who recently led a similar turnaround story at another food company. The CEO has brought in individuals who are motivated by opportunity and thrive on accountability and a high performance culture, and designed compensation packages that are aligned with targets set out in the company’s new value creation plan.
  2. Better Operations: The value creation plan involves a 40% profit improvement through cost initiatives alone. We like opportunities where there’s an ability to grow the value of the business without needing a favourable external environment to do so.
  3. Growing End Markets: U.S. organic food sales grew 8.4% in 2016, materially higher than the 0.6% growth in the overall food industry. The growth runway remains attractive as organic accounts for only 5% of total food sales despite growing consumer demand for healthier options.
  4. Competitive Advantage in an Industry-Leading Supply Chain: The supply of organic farms is limited and maintaining the integrity of the organic ingredients supply chain is not easy. Over the last 30 years, SunOpta has built the largest organic sourcing platform in the world and now sources ingredients from 65 countries. It has direct, long-stnding relationships with organic farmers and often helps with the certification process (note that it takes 3 years for a farm to gain the organic certification).
    [Note: SOY was also purchased in our Caldwell Canadian Value Momentum Fund (“CCVMF”). The stock was originally sourced for this mandate but subsequently hit the CCVMF’s buy list].

TFI International (tfii-t)

About the Company: TFII is a leading transportation company in North America, operating in the truckload, package & courier, less-than-truckload and logistics industries. It generates 53% of its revenue from Canada and another 46% from the U.S. The company has a strong track record of growing shareholder value, both organically and through strategic acquisitions and asset monetizations.
Investment Thesis: After rising nearly 30% following the announced acquisition of XPO’s North American assets, a weaker-than-expected earnings report subsequently sent the stock back to pre-acquisition levels, wiping out all of its previous gains. Expectations at the time of the acquisition were for the trucking cycle to recover in late 2017; the expected recovery has now been delayed into 2018. Additionally, under-investment in the acquired company will lead to heightened expenses over the next few years so that deal economics are not as favorable as originally thought. Having said that, the trucking recovery seems like a timing issue and, even after adjusting for higher costs, the deal remains very favorable to TFII shareholders. We believe the shares got ahead of themselves and expectations are now reset. Industry participants are cautiously optimistic that the trucking cycle has seen its bottom and management at TFII have shown a great ability to generate cash from acquired companies. We expect shares to resume moving higher as trucking weakness subsides and as the company begins to unlock value from recently acquired assets.
 

Keysight Technologies (keys-us)

About the Company: Keysight is the world’s largest electronic measurement company, providing hardware and software solutions that enable its customers to design, test and manufacture electronic products. They have market-leading, 20%+ market share in the Communications, Aerospace/Defense and Industrial Electronic verticals.
Investment Thesis: The company was spun out of Agilent Technologies in 2014 where it acted as a cash cow and received little growth capital. After several years of flat growth, KEYS seems well positioned to benefit from the following secular growth trends: i) 5G deployment: 5G is expected to be rolled out over the next few years as the rapid growth of connected devices and the increasing use of video streaming is driving demand for faster wireless systems. ii) Automotive/Power: the trend towards intelligent/connected cars, and power generation from renewable energy sources (battery power and wind power); iii) the move to software based testing and management. KEYS has mission-critical offerings with high barriers to entry and 50% recurring/repeat revenue. We believe KEYS’ valuation discount to the broader market is unwarranted and expect shares to move higher as growth starts to accelerate.

 

Portfolio Deletions

Quintiles IMS (q-us)

Reason We Sold: We initiated the Q position in November 2016. The forward tev/ebit multiple at that time was 11.7x versus 15.6x today. While the 6 months we held the stock is a relatively short investment period for this strategy, Q is up 25.7% since our initial purchase versus 15% for the S&P500 and 5% for the TSX Index. Given the expansion in the multiple and that the stock is one of the more expensive names in the portfolio, and that there is a bit of uncertainty related to their change in how they report bookings, we have decided to sell the position and re-deploy cash into other opportunities.

 

CCL Industries (ccl.b-t)

Reason We Sold:CCL has done a fantastic job of creating shareholder value through lean operations, extracting synergies from acquisitions, and improving its margin profile by shifting to higher-value add products. We initiated the CCL position in November 2012. The forward tev/ebit multiple at that time was 7.7x versus 18.2x today while EPS has grown from 0.57 to $2.24. This has been the strategy’s most successful position with a 589% return since its initial purchase versus 70% for the S&P500 and 24% for the TSX Index. Given the expansion in the multiple, and that the stock is up nearly 45% since its announced acquisition of Innovia in December 2016, we think a lot of future value creation is already baked into the stock price. As such, we have decided to sell the position and re-deploy cash into other opportunities.

We appreciate your continued support.

Best Regards,
Portfolio Management Team

The information contained in this document is designed to provide you with general information and is not intended to be comprehensive investment advice applicable to the circumstances of an institutional or individual investor. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rate(s) of return is (are) the historical annual compounded total return(s) including changes in (share or unit) value and reinvestment of all (dividends or distributions) and does (do) not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Inception Date: March 1, 1990. Principal Distributor: Caldwell Securities Ltd.

June 2017 | Caldwell Canadian Value Momentum Fund Commentary

Update on the Caldwell Canadian Value Momentum Fund
June 2017 1 Year 3 Year 5 Year Since Inception*
Caldwell CDN Value Momentum Fund “CCVMF” 0.0% 17.1% 6.4% 14.4% 11.7%
S&P/TSX Composite Total Return Index -0.8% 11.0% 3.1% 8.7% 6.2%

*Compounded Annual Return since August 15, 2011.


June Recap:

Accredited Investors Only

 

The Fund was flat in June versus a loss of 0.8% for the S&P/TSX Composite Total Return Index (“Index”). This is the 20th time since inception that the CCVMF outperformed the Index in a down month for a success ratio of 77% (20/26). The Fund’s 5-year down-capture statistic is now a mere 17%, which is amongst the best in the country. We attribute this to the Fund’s ability to identify and own catalyst-rich stocks that have the ability to unlock value, regardless of the market’s underlying performance. For the first half of 2017, the CCVMF is out-pacing the Index by 550 basis points (+6.2% for the CCVMF versus 0.7% for the Index) and places the CCVMF in the top 2% of all Canadian Equity funds on a year-to-date basis. Additionally, the CCVMF is Canada’s #1 performing fund in the Canadian Equity category* on a 5-year basis.


Top CCVMF performers in June were BRP Inc. (+15.6%) and Enerflex (+9.7%). BRP moved higher on a fantastic earnings report where earnings per share more than doubled what analysts were expecting and included the initiation of a dividend and a sizeable stock buyback. The company continues to execute on its long-term growth plan of 10%/15% annualized revenue/ EPS growth through 2020 as they take market share on the back of innovative product launches and an expanded distribution footprint. Enerflex moved higher following its announced acquisition of Mesa, which increases its compression fleet horsepower by nearly 20%, increases exposure in the Permian and Scoop/Stack basins (which are the most active production areas), increases its percentage of recurring revenue and offers meaningful cross-sell opportunities. The deal is expected to be immediately accretive to earnings per share. Earlier this year, we wrote that we would focus any commodity-related exposure to those companies that had the ability to create shareholder value beyond a simple improvement in the underlying commodity price. Enerflex’s strong performance in June (+9.7%) made it an outlier in its energy services peer group, which fell 3.1% on the back of a 4.7% decline in the price of crude oil. Since our initial purchase of Enerflex in January, the stock has gained 7.4% versus a decline of 3.1% for Canada’s energy sector.


One stock was added to the portfolio in June: SunOpta Inc. (SOY). The company is a leading provider of organic and non-GMO consumer food and ingredients in North America. Customers include Kirkland (Costco’s private label), McDonalds, Loblaw, Gerber, Cliff Bars, Frito Lay, Blue Diamond, Hain Celestial and Chobani. The business is a product of 30+ acquisitions since 1999 that were never effectively integrated, and recent operational missteps prompted the Board to conduct a strategic review of the business. We expect the share price to move meaningfully higher on: i) a new, results-driven management team; ii) a value creation plan that involves a 40% profit improvement through cost initiatives alone; iii) growing end markets – 2016 U.S. organic food sales grew 8.4% over 2015, materially higher than the 0.6% growth in the overall food industry. The runway remains robust as organic accounts for only 5% of total food sales.


The Fund held a 4% cash weighting at month end. We look forward to tracking the progress of the portfolio’s holdings as we see a meaningful and diverse set of catalysts to drive continued growth.


We thank you for your continued support.

The CCVMF Team

 

The Fund is available on a private placement basis only to residents of Canada who are qualified “Accredited Investors” as defined under National Instrument 45-106 Prospectus Exemptions and who are resident in Canada. This material is for information purposes only and does not constitute an offering memorandum or an offer or solicitation in any jurisdiction in which an offer or solicitation is not authorized.

Please read the Fund’s Offering Memorandum before investing. Prospective investors should rely solely on the Offering Memorandum which outlines the risk factors in making a decision to invest.

The indicated rates of return are historical annual compounded total returns net of fees and expenses paid by the Fund, including changes in unit value and reinvestment of all distributions, but do not take into account sales charges or income taxes payable by any securityholder that would have reduced returns. Investments in the Fund are not guaranteed, their values change frequently and past performance may not be repeated. Investment losses do and may occur, and investors could lose some or all of their investment in the Fund.

The information herein does not consider the specific investment objectives, financial situation or particular needs of any prospective investor. No assurance can be given that the Fund’s investment objective will be achieved or that investors will meet their investment goals. Prospective investors should consult their appropriate advisors prior to investing.

Information presented herein is obtained from sources we believe reliable, but we assume no responsibility for information provided to us from third parties. Caldwell Securities Ltd. and Caldwell Investment Management Ltd. are wholly-owned subsidiaries of Caldwell Financial Ltd. Officers, directors and employees of Caldwell Financial Ltd. and its subsidiaries may have positions in the securities mentioned herein and may make purchases and/or sales from time to time.

This information may not be reproduced for any purpose or provided to others in whole or in part without the prior written permission of Caldwell Investment Management Ltd. All information and opinions indicated herein are subject to change without notice. Inception date: August 15, 2011.

June 2017 | Are Investors Asking the Right Questions?

Are Investors Asking the Right Questions?

 

“Money Ball: The Art of Winning an Unfair Game” is a book by Michael Lewis that was made into a movie starring Brad Pitt. Pitt plays Billy Beane, the General Manager of the Oakland A’s, a major league baseball team, with a very small budget to compete against the likes of the New York Yankees and the Boston Red Sox. One day, Beane has an epiphany that the conventional wisdom of baseball was wrong. Using a system developed by Yale educated Peter Brand, the Oakland A’s went on to change the way players were evaluated and teams were built.

 

The system was based on a simple but profound thought – maybe the General Managers of professional baseball teams were asking the wrong questions. The art of the question, asking the right question, allows you to get to the root cause of the problem. This is a very important step in the investment process. Today, we can apply this rule to the current negotiations between the Eurogroup, the International Monetary Fund (“IMF”), the European Central Bank (“ECB”) and Greece.

 

Is Greece’s debt sustainable? We believe the answer is yes, if we use international accounting standards. No, if we use check book accounting.

 

We believe the question not being asked by many investors is “What is the net present value of Greece’s Net Debt to GDP, using International Public Sector Accounting Standards (“IPSAS”) or accrual accounting?” In a May 9, 2016 Bloomberg article, “The IMF Is Right About Greece”, Vincent Truglia, retired head of Moody’s Sovereign Risk Unit, states “I would argue strongly that Greece adopt IPSAS-based accounting, the gold-plate of recognized accounting standards to measure not only the Greek government’s debt, but should be used to determine budget decisions going forward”. If Greece did adopt IPSAS-based accounting standards, the reported net present value of net debt to GDP would be substantially below the 94% net debt to GDP that Canada has. Suffice to say, many investors have taken up the task.

 

The media and many in the official sector quote the future face value of debt as defined in the Maastricht Treaty which focuses on the contract value of debt due at maturity (cash accounting). The IPSAS is the public version of International Financial Reporting Standards (“IFRS”) that companies are required to follow. IPSAS is a full set of 32 accrual standards which countries such as Canada, the United States, New Zealand, France, and Sweden, to name a few, follow. The standards add transparency as well as introduce the concept of the time value of money, a key consideration when one is making major policy changes or monitoring the sustainability of debt levels. Greece still follows the rules of cash accounting. If any of its debt has been restructured, the reduction of interest rates and the extension of maturity would not be taken into account. It’s the Greek government’s responsibility to report their finances in a manner that captures the true economic value. There are significant market consequences for this lack of strong financial management. As the Greek government looks towards the IMF, the Eurogroup, and the ECB to provide a vote of confidence, all that is really needed is the implementation of sound financial accounting standards and procedures. Then the Greek government could show the global financial markets the true state of the country’s finances.

 

For some reason we are again witnessing the fight to maintain the status quo. Vested interests refuse to acknowledge that they have all agreed to support international accounting standards to measure debt. This required a country to report their debt in a manner that represents a true and fair value view of economic reality. This has been missed by the World Bank, IMF, ECB, EU and the Rating Agencies. Why don’t they follow the standards that they set and agreed upon? I personally have no clue…However, these are the same institutions that missed the risk in the run up to the global financial crisis. This time it’s not different and cycles do repeat. The numbers presented in IPSAS would lower the cost of capital, attract foreign capital, and stimulate economic growth.

 

Speaking of economic growth, China has been investing in Greece and see it as part of its foundation is implementing its belt road initative. From investing in ports, to promoting Chinese tourists to vacation in Greece, the economic integration between these two economies has yet to make the front pages of main stream media. To be sure, the smart money has noticed. We have positioned Pendragon to benefit from these two significant forces that will make Greece a very attractive destination for foreign capital.

 

Accredited Investors Only

The Fund is available on a private placement basis only to residents of Canada who are qualified “Accredited Investors” as defined under National Instrument 45-106 Prospectus Exemptions and who are resident in Canada. This material is for information purposes only and does not constitute an offering memorandum or an offer or solicitation in any jurisdiction in which an offer or solicitation is not authorized. Please read the Fund’s Offering Memorandum before investing. Prospective investors should rely solely on the Offering Memorandum which outlines the risk factors in making a decision to invest. The indicated rates of return are historical annual compounded total returns net of fees and expenses paid by the Fund, including changes in unit value and reinvestment of all distributions, but do not take into account sales charges or income taxes payable by any security holder that would have reduced returns. Investments in the Fund are not guaranteed, their values change frequently and past performance may not be repeated. Investment losses do and may occur, and investors could lose some or all of their investment in the Fund. The information herein does not consider the specific investment objectives, financial situation or particular needs of any prospective investor. No assurance can be given that the Fund’s investment objective will be achieved or that investors will meet their investment goals. Prospective investors should consult their appropriate advisors prior to investing. Information presented herein is obtained from sources we believe reliable, but we assume no responsibility for information provided to us from third parties. Caldwell Securities Ltd. and Caldwell Investment Management Ltd. are wholly-owned subsidiaries of Caldwell Financial Ltd. Officers, directors and employees of Caldwell Financial Ltd. and its subsidiaries may have positions in the securities mentioned herein and may make purchases and/or sales from time to time. This information may not be reproduced for any purpose or provided to others in whole or in part without the prior written permission of Caldwell Investment Management Ltd. All information and opinions indicated herein are subject to change without notice. Inception date: September 15, 2016.

May 2017 | Caldwell US Dividend Advantage Fund Report

 

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May 2017 | Caldwell Canadian Value Momentum Fund Commentary

 

May 2017 1 Year 3 Year 5 Year Since Inception*
Caldwell CDN Value Momentum Fund “CCVMF” 0.6% 16.6% 6.8% 14.4% 11.8%
S&P/TSX Composite Total Return Index -1.3% 12.3% 4.7% 9.1% 6.5%


*Compounded Annual Return since August 15, 2011.

 

May Recap:

Accredited Investors Only

 

The Fund gained 0.6% in May versus a loss of 1.3% for the S&P/TSX Composite Total Return Index (“Index”). This is the 19th time since inception that the CCVMF outperformed the Index in a down month for a success ratio of 76% (19/25). It is also the 11th time that the CCVMF posted a gain when the Index declined, a testament to the strong downside protection of the strategy.

 

Top CCVMF performers in May were Boyd Group (+13.3%) and Sleep Country (+10.5%). Boyd moved higher on the acquisition of Assured Automotive, Canada’s largest non-franchised collision repair company. The deal is expected to be immediately accretive to earnings per share and adds 68 locations, more than doubling Boyd’s Canadian footprint. Sleep Country moved higher on a strong Q1 earnings report that included a very impressive 12% growth in same store sales and over 100 basis points of margin expansion. Recent acceleration of troubles at Sears suggests additional market share opportunities and the potential for meaningful earnings per share growth.

 

Four stocks were added to the portfolio in May: Savaria Corp (SIS), Colliers International (CIGI), Cogeco (CGO) and People Corp (PEO). Savaria is a North American leader in accessibility solutions for the elderly and physically-challenged. Its products include wheelchair lifts, stair lifts, residential and commercial elevators and vehicle accessibility devices. It recently acquired Span-America which adds specialty mattresses, beds and related products to the portfolio and enhances their distribution into the long term care and acute care markets. The company is seeing strong demand drivers as the population ages, people live longer, and as the world increasingly accommodates those with physical disabilities. Colliers is a global leader in commercial real estate services with over 85% of sales outside of Canada. The company is benefitting from institutional investors increasing portfolio allocations to real estate as a means of generating yield in a low interest rate environment, and the preference by these institutions to partner with a large, multi-national provider over multiple local players. Cogeco is a cable and internet provider that is seeing improved execution and strong growth momentum in the U.S. market. We expect the discount to peers to narrow. Lastly, People Corporation provides employee group benefits consulting, third-party benefits administration services, and pension and human resource consulting to Canadian companies. The business has high recurring revenue (90%+) with attractive retention metrics and is benefitting from health care cost inflation. The company is consolidating a sleepy brokerage industry where it is seeing opportunities to accelerate sales (introducing sales targets and hiring new brokers) and reduce costs through back office synergies. This story also fits our ‘under-covered’ category with only 3 sell-side analysts covering the name.

 

The Fund held a 2% cash weighting at month end. We look forward to tracking the progress of the portfolio’s holdings as we see a meaningful and diverse set of catalysts to drive continued growth.

 

We thank you for your continued support.

 

The CCVMF Team

 

The Fund is available on a private placement basis only to residents of Canada who are qualified “Accredited Investors” as defined under National Instrument 45-106 Prospectus Exemptions and who are resident in Canada. This material is for information purposes only and does not constitute an offering memorandum or an offer or solicitation in any jurisdiction in which an offer or solicitation is not authorized.

Please read the Fund’s Offering Memorandum before investing. Prospective investors should rely solely on the Offering Memorandum which outlines the risk factors in making a decision to invest.

The indicated rates of return are historical annual compounded total returns net of fees and expenses paid by the Fund, including changes in unit value and reinvestment of all distributions, but do not take into account sales charges or income taxes payable by any securityholder that would have reduced returns. Investments in the Fund are not guaranteed, their values change frequently and past performance may not be repeated. Investment losses do and may occur, and investors could lose some or all of their investment in the Fund.

The information herein does not consider the specific investment objectives, financial situation or particular needs of any prospective investor. No assurance can be given that the Fund’s investment objective will be achieved or that investors will meet their investment goals. Prospective investors should consult their appropriate advisors prior to investing.

Information presented herein is obtained from sources we believe reliable, but we assume no responsibility for information provided to us from third parties. Caldwell Securities Ltd. and Caldwell Investment Management Ltd. are wholly-owned subsidiaries of Caldwell Financial Ltd. Officers, directors and employees of Caldwell Financial Ltd. and its subsidiaries may have positions in the securities mentioned herein and may make purchases and/or sales from time to time.

This information may not be reproduced for any purpose or provided to others in whole or in part without the prior written permission of Caldwell Investment Management Ltd. All information and opinions indicated herein are subject to change without notice. Inception date: August 15, 2011.

May 2017 | Pendragon Commentary

FAKE NEWS?!

In the 1960’s the Baby Boomer Generation started to become of age. For many, the free music concert in the summer of 1969, Woodstock, defined the generation. The “Pleasure Principle” began elevating over puritan ethics of work and community. Doing your own thing was more important than being a good citizen. A point of view at that time was driven by the work of Saul Alinsky in “Rules for Radicals” and Cloward & Piven in their article “The Weight of the Poor, a Strategy to End Poverty”. They put forth a political strategy that many in today’s alt-right media use as the basis of their conspiracy theory that the world is out to get President Trump. This strategy is simple, create a crisis from within the government that is supported by the media to change society. Friedrich Nietzsche stated, “there are no facts, only interpretations”. As investors, our job is to interpret the facts, and build portfolios. Easy to say, hard to do, in the new world of “fake news”. We must be agnostic politically.


Our job as investors is to read the tea leaves, and to use the emotional environment created by the media to identify opportunities for our clients. Given the increase in the political uncertainty around President Trump’s government, we have made the assumption that the Trump agenda will not be implemented immediately. The dysfunction within the Republican Party coupled with too many rookie mistakes by the Trump Team suggests that all the winning that was promised during the campaign might just be pushed off until early 2018.


We have also taken into consideration that the President seems to take a harder line in negotiations with America’s traditional allies. This is not good for Canada. Add to this the fact that commodities will at best trade sideways, and the risk that the economy has to make a correction in the real-estate market increasingly suggests storm clouds may be on the horizon for Canadian assets. Canadians for the most part are worldly citizens, yet we tend to invest in a provincial fashion, with most of our assets invested in Canada. In contrast, Americans tend to be much more provincial in their world view but they have no problem in having a large portion of their assets invested globally.


In the United States, they have reached a point where the question of “what is fake news?” is top of mind. Intolerance has reached a point where even free speech on University campuses is being questioned. The term liberty comes from the Latin word libertas, which means “unbounded, unrestricted or released from constraint”. The so called political left, or the liberals, seem to miss this point, which just adds fuel to the fire of the alt-right’s conspiracy theory put forth by internet news sites such as Breitbart or Infowars.


The current ongoing war in the journalism profession between old media (cable TV) and new media (the internet) highlights the power that fake news can have on investors’ physique and emotions.


As for the American Main Stream Media (MSM), a recent report from Harvard University does support the thesis that the MSM may be trying a touch to hard in questioning the President’s actions. This coverage may be clouding investors’ perceptions, and may generate opportunities in the future. All of this noise can’t be beneficial to anyone, but it can generate opportunities for those investors that can ignore the noise created by the civil war currently taking place in the media, for the minds of the U.S. and Global citizens.




Reference

Patterson, Thomas E. “News Coverage of Donald Trump’s First 100 Days.” Shorenstein Center on Media, Politics and Public Policy. Harvard Kennedy School, 18 May 2017. Web.

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March/April 2017 | Caldwell Balanced Fund Commentary

Portfolio Deletion

Onex (Onex-t)

Reason We Sold: The stock hit our valuation target, trading at over a 30% premium to net asset value (“NAV”). Onex has been busy on the monetization, fund-raising and investment fronts, all of which will have a positive impact on future NAV growth. While analysts expect the shares to move higher as NAV growth accelerates, forward NAV estimates seem, to us, to be pricing in a lot. Since the 30% premium to NAV level is where shares historically topped out, we decided to sell our position. Onex has been a very successful investment for our clients. Since our initial purchase in November 2011, Onex shares are up 187% versus 29% for the TSX, 72% for the Canadian Financials sector and 93% for the S&P500. 


Company Updates

Parkland Fuel (PKI-t)

Parkland announced it is acquiring Chevron Canada’s downstream fuel business. The acquisition will increase operating income by ~70%, is highly accretive, and further strengthens Parkland’s supply-focused business model by adding significant scale. We expect the stock to continue to grind higher as Parkland works through significant cost synergies, something it has proved quite adept at with its prior acquisitions. 


Bird Construction (BDT-t)

We are cautiously optimistic that shares have seen a bottom and are set to move higher from here. While earnings were well below expectations this past quarter, backlog grew 10% from the prior quarter, and is the first time backlog showed sequential growth since Q3-2015. Management’s tone is increasingly positive as they see a growing amount of bidding activity and improved margins embedded in their backlog. Bird also named Terrance McKibbon, who was formerly the CEO at Aecon Group, as the company’s new Chief Operating Officer. We view this addition in a positive light and expect it will accelerate Bird’s growth and diversification strategy. 


Broadridge Financial Solutions (BR)

The stock recently reached an all-time high on the back of a strong earnings report that saw closed sales increase 66% year over year. Broadridge’s offerings are mission critical and deeply embedded within the financial services industry. This leads to very sticky relationships which are further strengthened by the fact that over 50% of Broadridge’s salesforce  leverage its customer base and capture a higher share of wallet spend. The stock has significantly outpaced the TSX and S&P 500 since our initial purchase in December 2015 and we expect further upside as this strategy plays out, evidenced by the broad-based strength in closed sales.



We appreciate your continued support.



Best Regards,

Portfolio Management Team



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