Latest Ideas

June 2018 | Trade Wars: Trump, China and Canada

Pendragon

Trade Wars: Trump, China and Canada


We believe that the global economy is closed, that cycles repeat, and that investors are emotional and can make mistakes. This time, it is not different, and history holds clues as to how global financial markets may evolve. In a closed economy, the only way the economy can experience growth is through stealing market share, opening a new market, population growth/demographics, or experiencing the introduction of a new technology innovation. Long periods of chronic, slow, economic growth, that reduces the standard of living of the educated middle class, can lead to the rise of populism. Elections in Italy, demonstrations in Brazil, and the recent election in the province of Ontario provide evidence that this rise in populism is not local, but global in nature. The era of globalization that started after World War II is coming to an end. The sooner investors realize this, the better.


History reveals, that every 80 years or so, the global economy needs a reset. Global imbalances get too large and the rise of populism puts pressure on those in power to take drastic action. Without an internal, rule-based adjustment system (that equalizes the economies that manufacture too much and consume too little, think Germany and China), military force is typically used to solve the problem. The Trump Administration is trying to get the global leaders to realize that the existing trading system can no longer be supported by the American economy. John Maynard Keynes warned of this in 1945 at Bretton Woods. You can’t have a sovereign currency be the medium of exchange of the global economy and the global economy without a Trade Adjustment Mechanism. Countries will enter into currency wars, that devalue their currencies against the U.S. dollar, to make the products they produce more competitive. Furthermore, the World Trade Organization will be ineffective in solving trade disputes. Keynes also warned that eventually the country absorbing the excess capacity of the global economy (the USA) will reach its limits, thus changing its domestic policy to protect its economy. We have reached that point.


The trade deficit of the United States equals the summation of the world’s trade surplus. Since 1945, the USA has gone from a creditor nation to a debtor nation. With the unfunded liabilities growing, and because of its aging population, it must adjust. President Trump correctly states that the USA can no longer be the piggy bank that the rest of world borrows from. We have seen this narrative play out many times in history. In the past, military action has been the policy choice of action to remedy this problem. Let’s hope history does not repeat.


The hollowing out of the manufacturing base, zero interest rates, quantitative easing and austerity has ushered in a period referred to as “The New Normal”, or Secular Stagnation. Secular Stagnation is when chronic slow growth and declining standards of living gave rise to populism in the Western world. As many educated citizens realized that the policies of globalization did not deliver the economic fruits that were promised, voters surprised the elites and elected candidates that promised a new future. Think “Make America Great Again”. This is not so much about Trump as it is about the middle class worker in the Western world wanting change. President Obama promised an era of “Hope and Change” and ironically President Trump is continuing on with this same narrative. The establishment will fight for the status quo, but investors must realize there is no turning back. With the election of Doug Ford as Premier in Ontario, the populist movement now has a strong foot hold in the economic center of the country, investors need to discount the fact that the global economy is going through an adjustment period.


Dr. James E. Thorne

Chief Capital Market Strategist & Senior Portfolio Manager

 

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 2018 | Caldwell Canadian Value Momentum Fund Commentary

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May Recap: 

 

The Fund gained 2.3% in May versus a gain of 3.1% for the S&P/TSX Composite Total Return Index ("Index”). The Index's performance was driven by strong performance in Technology (+7.8%), Industrials (+6.7%) and Materials (+5.5%) while yield-sensitive sectors continued to feel the pressure: Utilities (-1.9%) and Telecom (-0.6%). We suspect that there are many Canadian investors that are still under-water in their portfolios year-to-date, especially those that were sold on the 'safety' of dividends. While the Index is essentially flat year-to-date, the Utilities sector is -10.4% (think Transalta, Fortis and Algonquin Power), the Telecom sector is -7.7% (led by BCE, down 10.5%) and the Consumer Staples sector is -6.1% (led by market darling Alimentation Couche-Tard Inc. (“ATD.B”), down 17.5%).

 

Top CCVMF performers in May were BRP Inc. (“DOO”: +16.3%) and ATS Automation (“ATA”: +15.4%). BRP reported a knock-out quarter on May 31st with broad-based strength in sales (+19% y/y) as new products continue to perform very well. Gross margin was 160 bps higher y/y and FY guidance was raised on both the top and bottom lines. The stock saw strength going into the earnings release as channel-checks indicated strong product positioning and share gains. ATA also reported a very strong quarter, posting a 3rd straight quarter of double-digit revenue and triple-digit margin expansion. Bookings were strong with the backlog now sitting at record levels. The new CEO seems to be executing very well and re-iterated the target for 500 bps of margin expansion. The trend of automation seems to be accelerating as companies confront rising wages, scarcity of low-wage labor and regulatory increases in quality control.

 

One stock was added to the portfolio in May: Yangarra Resources (“YGR”). Yangarra is an oil and gas company with an operational focus on light oil development in the Cardium formation in West Central Alberta. The company is a low-cost organic growth story; production has increased from 2,000 barrel of oil equivalent per day (“boe/day”) in 2015 to 7,500 boe/day currently through innovative drilling and completion techniques that have allowed the company to access parts of the Cardium that were previously inaccessible. The company's costs rank amongst the lowest in their oil-weighted peer group (with full cycle returns amongst the highest), while the balance sheet is strong and valuation is in line with peers. We expect the company to continue releasing good results as they make their way to a 15,000 boe/day production target by 2019.

 

The Fund held a 29.3% cash weighting at month-end which is down to 17% at the time of writing. As previously discussed, we expect cash balances to move lower as we progress through the CCVMF's investment process. In the meantime, 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 document is designed to provide general information related to investment alternatives and strategies and is not intended to be investment or any other advice applicable to the circumstances of individual investors. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Unless otherwise specified, information in this document is provided as of the date of first publication and will not be updated. All information herein is qualified in its entirety by the disclosure found in the CCVMF’s most recently filed simplified prospectus. Information contained in this document has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. Unless otherwise indicated, rates of return are the historical annual compounded total 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 security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The CCVMF is a publicly offered mutual fund that offers its securities pursuant to simplified prospectus dated July 20, 2017. The CCVMF was not a reporting issuer prior to that date and formerly offered its securities privately as follows: Series F and Series I since March 28, 2014 and Series O since August 8, 2011. The expenses of the CCVMF would have been higher during the period prior to becoming a reporting issuer had the fund been subject to the additional regulatory requirements applicable to a reporting issuer. Inception Date: August 8, 2011. Principal Distributor: Caldwell Securities Ltd.

May 2018 | Da Vinci, Newton, Buffett & the Evolution of the Global Economy

Pendragon

Da Vinci, Newton, Buffett & the Evolution of the Global Economy

“If I have seen further, it is by standing on the shoulder of giants.” - Sir Isaac Newton


At the heart of the Blockchain is complex mathematics. Cryptography is what lies at the core of the distributed ledger technology that provides trust, which, in turn, allows transaction to be completed and recorded. To understand cryptography, one needs to have the tools and the ability to understand complex mathematics, which is beyond the scope of the average investor. The inability to navigate this roadblock leads many investors to incorrectly conclude that the Blockchain is nothing more than rat poison to the global economy. Forgetting the theory of mathematics for a moment, we thought it would be helpful to research the core technology of this innovation. Through doing so, it was concluded that the distributed ledger technology is the digital manifestation of double entry bookkeeping accounting. Too few realize that the history and evolution of accounting is tied to the history of global trade and therefore, the history of human progress. Accounting is an extremely important influential innovation that gets taken for granted. Its digitization will have profound effects on the recording, transaction, and record keeping that play a central role in our global economic, legal, and political systems. In addition to the establishment of identity and governing interactions among nations, industries, political organizations, health care institutions, businesses, and individuals, the Blockchain allows the global economy to evolve into its true native digital state. Hardly, rat poison.


Since the 1950’s, the global economy has been slowly evolving from an analogue world (where process is controlled by humans and paper), to a digital world. However, to truly understand how profound this innovation is, shrouded in complex mathematics, we need to go back to the 1400’s and the Italian Renaissance. It has been well documented and researched that the history of human progress can be explained through a narrative, with a focus on global trade and the history of accounting. Commerce connects countries, industries, businesses, and the citizens of the world. This connection, in many cases, has long been facilitated through double entry bookkeeping, accounting and banking.


Modern banking is over 700 years old. It was invented in the early Italian Renaissance, first modelled by the “Medici Bank” in Florence, Italy. In 1474, a Franciscan Monk named Fra Luca Bartolomeo de Pacioli (the tutor of Leonardo da Vinci) published the first major work on double entry bookkeeping accounting. With his findings, the recording of transactions was introduced into the world of commerce and trade, thus becoming a core business process. From the 1400’s until today, the recording of transactions and transferring of property rights has been done with an analogue process. Simply put, the process has not evolved. This fact has slowed the evolution of the global economy and society from an analogue world to a world in its true native digital state.


Our thesis is the combination of mathematics, economic incentives, and digital ledger technology (to solve the double spend problem), which creates the innovation necessary to replace the analogue aspects of accounting theory that has been hindering the evolution of the global economy. History reveals the power of an innovation mostly ignored by society. There could be no double entry bookkeeping accounting without the invention of the number zero. Without accounting, there would be no corporations, financial markets, global trade, and no financial theory, everything used by those who refer to this new technology as rat poison (Mr. Buffett). To get to this conclusion, one must leave behind the basics of mathematics, have an open mind, and ask the question: “What would the world be like if transactions took place in a pure digital state, where the databases were decentralized, security was ensured and no human intervention was needed?” The answer? An economy with lower transaction cost, less friction, and less fraud, where individuals control their identities - an economy in its true native digital state. For many, the complex mathematics at the foundation of the Blockchain will deter investment. Others realize that the technology is a digital advancement to a process started in the Italian Renaissance and a method by which the global economy can evolve. To paraphrase Sir Isaac Newton, we are able to see further by standing on the shoulder of the giants that came before us.


Dr. James E. Thorne

Chief Capital Market Strategist & Senior Portfolio Manager

 

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.

April 2018 | Caldwell Canadian Value Momentum Fund Commentary

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April Recap:

 

The Fund was flat in April versus a gain of 1.8% for the S&P/TSX Composite Total Return Index ("Index”). The Index's performance was driven by Energy (+6.8%) while yield-sensitive sectors continued to feel the pressure of rising interest rates: Utilities (-1.8%), Consumer Staples (-1.4%) and REITs (-0.4%).

 

Top CCVMF performers in April were WSP Global (WSP: +7.1%) and North American Construction Group (NOA: +7.1%). While there was no specific news related to WSP, the company is coming off a solid earnings report in March and Ontario and Quebec budgets released at the end of March suggest that infrastructure spending is still a focus for governments. There is also chatter that WSP is in a position to possibly do a larger, transformational type of acquisition as it continues to consolidate the industry. NOA's positive momentum continues as its guidance for 15% CAGR in revenue and ebitda for 2018 and 2019 is starting to look conservative. The company is benefiting from a successful renewal of oil sands long term service agreements and Suncor's Fort Hills mine is providing incremental demand. NOA also has good line of sight into heavy construction projects for the summer of 2018 after a 4 year drought and commodity price strength is providing additional opportunities.

 

One stock was added to the portfolio in April: Methanex (MX). Methanex is the largest producer of methanol in the world, accounting for ~15% of global capacity. Methanol is a chemical used to manufacture many consumer and industrial products and is also a clean-burning alternative fuel source. The company is benefiting from very strong methanol pricing and, while there are many moving parts, it seems that supply/demand fundamentals will remain favorable through the end of the year. Demand is being driven by new consumption from methanol-to-olefins (MTO) plants in China and longer term demand drivers from marine fuel, industrial boilers and fuel-blending show significant potential. Analysts have modeled methanol prices to retreat from recent highs so any sustained tightness would be positive. The company is aggressively buying back shares with excess cash flow as capital spending remains minimal for the next 18 months.

 

The Fund held a 31.4% cash weighting at month end. As previously discussed, we expect cash balances to move lower as we progress through the CCVMF's investment process. In the meantime, 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 document is designed to provide general information related to investment alternatives and strategies and is not intended to be investment or any other advice applicable to the circumstances of individual investors. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Unless otherwise specified, information in this document is provided as of the date of first publication and will not be updated. All information herein is qualified in its entirety by the disclosure found in the CCVMF’s most recently filed simplified prospectus. Information contained in this document has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. Unless otherwise indicated, rates of return are the historical annual compounded total 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 security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The CCVMF is a publicly offered mutual fund that offers its securities pursuant to simplified prospectus dated July 20, 2017. The CCVMF was not a reporting issuer prior to that date and formerly offered its securities privately as follows: Series F and Series I since March 28, 2014 and Series O since August 8, 2011. The expenses of the CCVMF would have been higher during the period prior to becoming a reporting issuer had the fund been subject to the additional regulatory requirements applicable to a reporting issuer. Inception Date: August 8, 2011. Principal Distributor: Caldwell Securities Ltd.

April 2018 | Entropy: The Degree of Disorder or Randomness in the System

Pendragon

Entropy: The Degree of Disorder or Randomness in the System

When a high level of entropy exists, people tend to just shut down. When events occur too frequently, chaos develops, volatility increases to extreme levels and risk aversion ensues. With President Trump, through the desire to implement trade policy through the unconventional means of social media, the level of entropy has hit an extreme high. In reality, the trade war was actually lost decades ago. The key issue is the fact that in China’s 2025 economic strategy high tech industries are the main focus, and this is the battle ground.


The reality is that this is not so much about trade wars but trade theatre. With mid-term elections coming in the fall, the President needs to be seen fulfilling his election promises. A deal on intellectual property rights will be made and it may take some time. In the end President Trump’s bark is bigger then his bite.


The United States can on longer absorb the excess capacity generated by Germany and China. John Maynard Keynes warned that this bridge would eventually be crossed during the negotiations at Bretton Woods in 1944. He rightly predicted that the World Trade Organization was not strong enough to deal with the inherent problems created by a closed economy. Countries that manufacture trade surpluses are reticent to back up or create conditions to consume more internally. This is known, and will be dealt with through negotiations.


While economic conditions point to a period of strong company earnings, the heightened political risk, caused by concern regarding an impending trade war, has caused extreme volatility in the financial markets. Prudence suggests investors reduce exposure, and we have with the Pendragon Fund. While earnings will be strong, we expect the market to be volatile in the short-term and a deal will be made before the mid-term election season starts. When this happens, fundamentals will again take center stage. Until then, a high level of entropy will exist in the markets.


This does not mean the evolutionary process and the global economy has stopped. If the politicians and regulators step aside, the financial markets and the global economy will continue to grow and the new data driven economy will continue to evolve at a rapid pace.


Investors should look at this period as the pause that refreshes.


Dr. James E. Thorne

Chief Capital Market Strategist & Senior Portfolio Manager

 

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.

March 2018 | Caldwell Canadian Value Momentum Fund Commentary

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March Recap:

 

The Fund gained 1.6% in March versus a loss of 0.2% for the S&P/TSX Composite Total Return Index ("Index”). The Index's performance was mixed on a sector level, with the strongest performance coming from REITS (+1.7%) and the Gold sub-sector (+6.8%) while Industrials (-2.4%) was the worst performer.

 

One of the core features of the CCVMF is investing in stocks that have the ability to unlock value regardless of the market's underlying performance. The Fund's out-performance this month is telling given its largest sector exposure - Industrials (38% of the portfolio at month end) - was also the market's worst performing sector. Looking at the CCVMF's individual holdings within Industrials, 8/10 (80%) out-performed the Industrials sector while 6/10 (60%) posted a positive return in a down market. This type of performance is the result of a high-conviction portfolio of stocks with strong company-specific catalysts, made possible by a proprietary, bottom-up, investment process.

 

This is the 3rd consecutive month that the CCVMF out-performed the Index in a down market. Since inception (Aug 2011), the fund has outperformed the Index in 23 of 30 down months for a 77% success ratio. The CCVMF's return and down-capture in March led all of its peers in the Canadian Equity category. The CCVMF's down capture in March was actually negative (a good thing) given the Fund posted a positive return in a negative market.

 

Top CCVMF performers in March were Premium Brands Holdings (PBH: +14%) and Stuart Olsen (SOX: +12%). While PBH reported a mixed quarter, issues seem to be temporary and the company continues to progress with its acquisition strategy, having announced 4 acquisitions that will be accretive to current year earnings. The company’s guidance was in-line with the consensus estimate but did not include any contribution from these acquisitions. This suggests upside to the company’s guide and analysts estimates have moved higher accordingly. Stuart Olsen had a very strong quarter with a 14% EBITDA beat driven by higher than expected margins. Leverage and payout positions have improved significantly and the company is making progress on its diversification efforts, evidenced by new contract wins.

 

No stocks were added to the portfolio in March.

 

The Fund held a 29% cash weighting at month end. As previously discussed, we expect cash balances to move lower as we progress through the CCVMF's investment process. In the meantime, 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 document is designed to provide general information related to investment alternatives and strategies and is not intended to be investment or any other advice applicable to the circumstances of individual investors. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Unless otherwise specified, information in this document is provided as of the date of first publication and will not be updated. All information herein is qualified in its entirety by the disclosure found in the CCVMF’s most recently filed simplified prospectus. Information contained in this document has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. Unless otherwise indicated, rates of return are the historical annual compounded total 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 security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The CCVMF is a publicly offered mutual fund that offers its securities pursuant to simplified prospectus dated July 20, 2017. The CCVMF was not a reporting issuer prior to that date and formerly offered its securities privately as follows: Series F and Series I since March 28, 2014 and Series O since August 8, 2011. The expenses of the CCVMF would have been higher during the period prior to becoming a reporting issuer had the fund been subject to the additional regulatory requirements applicable to a reporting issuer. Inception Date: August 8, 2011. Principal Distributor: Caldwell Securities Ltd.

March 2018 | The World’s Evolution To Its True “Native Digital State”

Pendragon

The World’s Evolution To Its True “Native Digital State”

“See, the world is full of things more powerful than us. But if you know how to catch a ride, you can go places,”
- Neal Stephenson, Snow Crash


The world continually changes and evolves. This has always been true and those that fail to innovate and adapt will be left behind. The evolution of the global economy is a force more powerful then us. The ride today is provided by the innovation called the Blockchain, and yes, if you catch this ride it will take you places. Do we know who the long-term winners will be with certainty? No. But we must recognize that the status quo is being attacked by very strong disruptive forces. Simply put, data is the new oil. Decentralization is upon us and the world is evolving very quickly from its analogue foundations, which were developed in the 1800’s, into its true native digital form. This is the ride that Pendragon is catching.


Throughout history, when a major innovation has been introduced, it tends to absorbed into the economy in two distinct steps. Step one, the technology is initially introduced, the 80’s and the 90’s introduced the computer and the internet to the world. Step two, the economy absorbs the technology to the point where it dramatically changes the world we live in. Today the Internet of Things, Alternative Intelligence, Machine Learning, and the Blockchain, are now dramatically changing the way we live and do business. Academics label the former Gilded Age, while the latter is labeled the Golden Age. The Blockchain, a data base innovation which applies cryptography, is front and centre catching the imaginations of many. To some, this new data model may be as significant as the printing press or double entry book keeping accounting. To others, it’s referred to as a tulip bulb. To be sure no one knows what the future holds, but it would be folly to assume that the status quo will be maintained.


In the past, civilizations were organized and settled in a centralized manner. The introduction of the internet into our society started the pendulum to swing back towards a decentralization. The Blockchain allows data bases to be secure, transparent and decentralized. The introduction of a decentralized accounting ledger, that you can only add information to and cannot be hacked, releases profound forces of disruption into the economy. Just imagine a tamper proof ledger of transactions (cannot be hacked) that exists in multiple (decentralized) locations for everyone to see. The joint forces of the internet and the Blockchain will now accelerate the rate upon which society decentralizes, and digitizes.


Many will be unhappy with this occurrence and will fight to maintain the status quo. Education is key to understanding the opportunities that lie ahead.


Dr. James E. Thorne

Chief Capital Market Strategist & Senior Portfolio Manager

 

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.

February 2018 | Caldwell Canadian Value Momentum Fund Commentary

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February Recap:

 

The Fund fell 0.7% in February versus a more substantial loss of 3.0% for the S&P/TSX Composite Total Return Index ("Index”). The decline in the Index was broad-based, with only the Technology (+5.8%) and Industrials (+1.3%) sectors posting positive returns. Energy (-6.4%), Health Care (-10.1%) and Gold (-11.7%) were the worst performers.

 

This is the 2nd consecutive month that the CCVMF out-performed the Index in a down market. Since inception (Aug 2011), the fund has outperformed the Index in 22 of 29 down months for a 76% success ratio. For the month of February, the CCVMF's down capture was 22.5% which ranks in the top 1% of all Canadian Equity funds.

 

Just a quick reminder that, unlike many Canadian Equity strategies that can have significant exposure to the U.S. and foreign exchange rates, the CCVMF invests entirely in Canadian stocks or cash.

 

Top CCVMF performers in February were North American Energy Partners (“NOA”: +9%) and CGI Group (“GIB.A”: +6.5%). NOA was added to the portfolio last month and significantly out-performed its sector (Energy -6.4%) on the back of a solid earnings report in which the company re-iterated their strong outlook. EBITDA is expected to grow 15% annually through 2019 driven by new project wins, successful service agreement renewals and continued expansion into non-oilsands projects. CGI also had a strong earnings report on an acceleration in revenue growth (constant currency growth moved to 4.9% versus 2.5% the prior quarter). Bookings also set an 8-quarter high as demand for the company's Digital and Intellectual Property “IP” solutions remains strong given increasing IT budgets at CGI's customers.

 

Two stocks were added to the portfolio in February: ATS Automation “ATA” and New Flyer Industries “NFI”. ATS is a leading provider of automated manufacturing solutions and serves a diverse set of clients across the Healthcare/Life Sciences (49% of revenue), Transportation (27%), Energy (13%) and Consumer Products (12%) industries. Demand trends are strong with rising wages, re-shoring, scarce low-wage labour, and higher quality control leading companies to turn to automation. Particularly noteworthy secular demand drivers are in healthcare, where manufacturers face increasingly stringent regulations, and in transportation, driven by electric vehicles. ATS also has a robust M&A pipeline that should provide additional growth opportunities. Lastly, the company has a new CEO that is looking to drive 5% of margin expansion by driving a culture of process-driven improvement. New Flyer was sold from the portfolio in late 2017 as the stock hit our sell signals. We re-initiated the position after another attractive acquisition and the company's investor day, which highlighted continued strong demand trends and further runway for product line growth and margin expansion. NFI's leadership position in electric buses has also become more clear, which removes a source of negative sentiment on the stock.

 

The Fund held a 36% cash weighting at month end. As previously discussed, we expect cash balances to move lower as we progress through the CCVMF's investment process. In the meantime, 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 document is designed to provide general information related to investment alternatives and strategies and is not intended to be investment or any other advice applicable to the circumstances of individual investors. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Unless otherwise specified, information in this document is provided as of the date of first publication and will not be updated. All information herein is qualified in its entirety by the disclosure found in the CCVMF’s most recently filed simplified prospectus. Information contained in this document has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. Unless otherwise indicated, rates of return are the historical annual compounded total 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 security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The CCVMF is a publicly offered mutual fund that offers its securities pursuant to simplified prospectus dated July 20, 2017. The CCVMF was not a reporting issuer prior to that date and formerly offered its securities privately as follows: Series F and Series I since March 28, 2014 and Series O since August 8, 2011. The expenses of the CCVMF would have been higher during the period prior to becoming a reporting issuer had the fund been subject to the additional regulatory requirements applicable to a reporting issuer. Inception Date: August 8, 2011. Principal Distributor: Caldwell Securities Ltd.

February 2018 | Decentralization is No Tulip

Pendragon

Decentralization is No Tulip

"Those who fail to learn from history are doomed to repeat it." - Sir Winston Churchill, 1948

With all the noise created by many pundits concerning the innovation called the Blockchain and cryptocurrency, we found it very helpful to go back to first principles and analyze the genesis and evolution of the internet and the data set. Our thinking is that the global economy is at the intersection of three major themes: the Internet of Things, Artificial Intelligence, and the Blockchain. Together, these three concepts are important components of a theme we refer to as Web 3.0 or Decentralization.


As our society evolved from one based upon barter, to one based upon markets and manufacturing, a need to prove trust became necessary. Who was going to make sure that citizens or market participants could trust each other so that property rights could be transferred? In the analogue world, institutions, governments, and professions evolved to ensure that trust and property rights could be transferred. Thus our countries, cities, industries, and organizations were built to have a centralized benevolent dictator determine what was right and what was wrong. Our society has now reached a fork in the road. The rise of populism has put pressure on the existing institutions and social conventions. We are entering into a new regime, one characterized by the forces of “decentralization”. For investors, it is critical to recognize these evolutionary forces will be accelerated by three sub themes, the Internet of Things, Artificial Intelligence, and the Blockchain.


As the global economy continues to evolve from one that is centralized and built in an analogue world (with paper and humans at the center) to a decentralized digital world, one must accept the fact that the status quo will be under attack. Putting a computer chip into a machine, connecting the machine to the internet, having machines communicate to each other without human interference, while all the time learning, will have profound effects on society. Furthermore, the ability for machines to exchange value in a transparent, permanent, immutable, reliable and decentralized process, only begins to foreshadow the disruption ahead of us.


So while many in the media point to the Blockchain and cryptocurrencies as a bubble similar to tulips, our research suggests that when computer scientists solved the Byzantine Generals Problem, a problem which outlines how difficult unanimous trust is to coordinate, a critical research triumph was achieved. This accomplishment will now allow the global economy, to evolve at a faster pace into its true native digital decentralized form. So yes, we think it’s folly to suggest that Web 3.0, as some refer to it, is analogous to the tulips bulb mania. We also think this regime we have just entered into, might be the most transformative of our generation.


A brief review of history: In the 1950’s, the internet was designed to be free and decentralized. It was born out of the concern, during the cold war, that the United States needed a back up communication system in the event the Soviet Union attacked the telephone lines. This evolved into the world wide web. Unfortunately, the only way that companies could make money was to aggregate or centralize data, a far cry from the libertarian aspirations put forth by the founders of Facebook and Google. The Blockchain is the critical technology that will allow our society to evolve into its true native digital form. To prove trust in the Blockchain we need computers solving mathematical questions, proof of their work, and then their reward is a token that can be use in the network or exchanged for fiat currency. This is hardly a tulip.


Dr. James E. Thorne

Chief Capital Market Strategist & Senior Portfolio Manager

 

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.

January 2018 | Caldwell Canadian Value Momentum Fund Commentary

< Back

 

January Recap:

 

The Fund fell 0.8% in January versus a more substantial loss of 1.4% for the S&P/TSX Composite Total Return Index ("Index”). Last month's out-performance of traditionally defensive sectors reversed in January with Consumer Staples (-1.9%), Telecom (-4.5%%) and Utilities (-4.5%) under-performing in a down month. Technology was the best performing sector in the market (+5.4%). 

 

Top CCVMF performers in January were BRP Inc. (+9.4%) and Ag Growth International (+6.6%). BRP was out marketing in January and pointed to continued strength in end markets and continued runway in penetrating new product categories. Meanwhile, Ag Growth seems to be picking up after drifting lower in a seasonally weaker period. We are encouraged to see renewed buying interest in the stock as there has been no change to the company's significant growth opportunities tied to the build-out of agricultural infrastructure. 

 

Two stocks were added to the portfolio in January: North American Energy Partners (NOA) and Stuart Olsen (SOX). NOA has done a very good job of improving its business through balance sheet and margin improvements and end market diversification. The company invested through the down-cycle and is now well-positioned to take advantage of an up-tick in activity. Stuart Olsen is expected to benefit from infrastructure spending coming out of Canada's 2015 federal election, which is only now starting to hit the market. The stock trades at a significant discount to peers and we expect this gap to narrow as activity picks up and operating metrics improve. 

 

The bigger story is the market's behavior once February started. We will have more color in next month's note but we are pleased with how the CCVMF has navigated the market's volatility thus far. Specifically, the fund continues to exhibit defensive qualities on the down-side while, at the same time, retaining strong participation in the market's upside. 

 

The Fund held a 33.8% cash weighting at month end. As previously discussed, we expect cash balances to move lower as we progress through the CCVMF's investment process. In the meantime, 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

Peer Comparison

The information contained in this document is designed to provide general information related to investment alternatives and strategies and is not intended to be investment or any other advice applicable to the circumstances of individual investors. We strongly recommend you to consult with a financial advisor prior to making any investment decisions. Unless otherwise specified, information in this document is provided as of the date of first publication and will not be updated. All information herein is qualified in its entirety by the disclosure found in the CCVMF’s most recently filed simplified prospectus. Information contained in this document has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing in this product. Unless otherwise indicated, rates of return are the historical annual compounded total 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 security holder that would have reduced returns. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. The CCVMF is a publicly offered mutual fund that offers its securities pursuant to simplified prospectus dated July 20, 2017. The CCVMF was not a reporting issuer prior to that date and formerly offered its securities privately as follows: Series F and Series I since March 28, 2014 and Series O since August 8, 2011. The expenses of the CCVMF would have been higher during the period prior to becoming a reporting issuer had the fund been subject to the additional regulatory requirements applicable to a reporting issuer. Inception Date: August 8, 2011. Principal Distributor: Caldwell Securities Ltd.