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January 2018 | Caldwell Canadian Value Momentum Fund Commentary

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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.

December 2017 | Caldwell Balanced Fund Commentary

Portfolio Additions

AmerisourceBergen (ABC-us)

About the Company: ABC is the leading pharmaceutical distributor in the U.S. and competes directly with Cardinal Health (CAH).

Investment Thesis: We purchased ABC as a replacement for CAH. In addition to getting a slightly better cash flow yield with ABC, we also get a better balance sheet, better positioning in the higher growth specialty segment, less contractual risk, better management and also remove headwinds form CAH’s medical supplies business. The industry continues to trade at a sizable discount to the market but we believe this gap will close as deflationary trends are improving and the group benefits from the recently-enacted U.S. tax plan.

 

Mitel Networks (MNW-us)

About the Company: Mitel is a leading provider of communication tools to businesses and other organizations (hotels, hospitals, schools, etc). Its focus is on unified communications and collaborations (UCC) which serve to integrate different types of communication tools across different end users, geographies and devices.

Investment Thesis: Mitel trades at a significant discount to the market and peers and we believe the shares can move meaningfully higher as focus shifts from their legacy on-premise to their growing cloud platforms. The 2017 acquisition of Shoretel increased Mitel’s recurring revenue to 40% of total revenue and increased recurring cloud revenue, which is growing at a double-digit pace, from 12% to 20%. Mitel has a large installed base of 60 million on premise users of which only 1.5 million have converted to the cloud model, providing a long runway of cloud growth. We also expect margins and cash flow to significantly improve on the combination of cloud growth, cost initiatives, Shoretel synergies and interest savings.

 

Berry Global (BERY-us)

About the Company: Berry is a leading specialty plastics producer whose products are used in a diverse set of end markets, including the health & personal care, household, food & beverage, food service, industrial and transportation markets.

Investment Thesis: BERY is a leader in the fragmented specialty plastics industry where its scale allows it to be the low cost producer. With $7 billion in revenue within a $200+ billion packaging industry, the company has continued growth runway through a successful acquisition strategy that has resulted in meaningful earnings per share growth. With approximately 2/3 of revenue tied to stable end markets, we expect BERY to provide stability to the portfolio. From a valuation standpoint, we view BERY’s 5% free cash flow yield, which ranks in the top 15% of our screening universe, as attractive.

 

TE Connectivity (TEL-us)

About the Company: TE is the largest global manufacturer of connectors, which protect the flow of power and data inside of millions of products used daily by consumers and industries. It has leadership positions in each major end market -transportation, industrial equipment, energy and consumer – and generates $13 billion in revenue within a $70 billion addressable market. TE does particularly well in ‘harsh environments’ which are characterized by extremes in temperature, pressure and vibration with exposure to fluids. TE also supplies sensors that measure and respond to pressure, temperature, humidity, position, force, vibration and other readings.

Investment Thesis: We expect TE’s growth to accelerate on the back of several secular trends. These include the advancement of safety, efficiency/electrification and connectivity of the auto and other vehicles (TE’s content per vehicle is expected to grow from the low $60s today to over $100 over the next 8 years), continued factory automation and demographic-driven growth in medical devices where TE specializes in minimally invasive procedures. We also expect further margin growth driven by TE’s lean operations model. Despite these strong tailwinds and a high teens return on equity that ranks TE in the top 30% of our screening universe, the stock trades at a slight discount to the S&P500 and generates twice the free cash flow yield of our screening universe.

 

Stantec (STN-t)

About the Company: Stantec is the 3rd largest design firm in North America and provides engineering, architecture, and project management services to Infrastructure (28% of revenue), Buildings (22%), Water (22%), Environmental Services (17%) and Energy & Resources (11%) projects. STN has 22,000 employees and operates in 400+ locations globally.

Investment Thesis: STN is a high quality business that has under-performed peers on the back of oil & gas/resource exposure and several self-inflicted, but temporary (in our view) missteps. We believe these issues are behind the company and several catalysts suggest a higher share price going forward, including: 1) Analyst estimates have been reset lower, thereby reducing the likelihood of additional disappointments; 2) Infrastructure spending is picking up and STN should benefit given its leadership positions in key verticals; 3) Commodity prices have moved higher suggesting STN’s commodity-related verticals have likely seen a bottom; 4) A new CEO helps put recent missteps in the rearview mirror; 5) Renewed acquisition after an extended integration period. At the time of purchase, STN traded at a 5.2% free cash flow yield versus 4.6% and 3.0%, respectively for peers TTEK and WSP despite significantly higher return on equity. Versus our broader screening universe, STN has a higher return on equity, better balance sheet, lower capex requirements, greater profitability, equal to or greater growth opportunity and yet trades at over two times the universe’s free cash flow yield at 5.2%.

 

Delphi Technologies (DLPH-us)

About the Company: Delphi Technologies, a recent spin-out from Delphi Automotive, is a leader in products that optimize a vehicle’s powertrain.

Investment Thesis: DLPH is a best-in-class operator with a long track record of consistent execution and solid market share positioning in each of its major segments. Delphi has strong relationships with most of the major Original Equipment Manufacturers (“OEMs”) and, given its high degree of technical expertise, benefits from high switching costs. The company is well-positioned to benefit from: 1) Regulatory-driven reductions in vehicle emissions; 2) The shift from combustion to hybrid/electric-vehicle (EV) systems (where Delphi carries five times the normal engine content); and 3) A cyclical recovery in commercial truck/aftermarket volumes. We believe these growth opportunities, coupled with margin expansion and a multiple re-rate to reflect its status as a beneficiary of EV systems, will drive the stock price meaningfully higher.

Portfolio Deletions

Cardinal Health (CAH-us)

Reason We Sold: See ABC thesis, above.

 

Robert Half (RHI-us)

Reason We Sold: RHI is up ~50% since the late 2016 lows on speculated (and now confirmed) benefits from U.S. tax reform and a strengthening U.S. economy. Our concerns stem from RHI’s commentary surrounding lengthening conversion cycles and this leads us to wonder if something has structurally changed for the recruiters, particularly as companies like Google and LinkedIn (Microsoft) look to leverage their vast databases. As such, we see better risk/reward in the opportunities added to the portfolio.

 

Apogee (APOG-us)

Reason We Sold: We sold APOG following another weak quarter as our investment thesis is not playing out as expected. Despite favorable end market dynamics and a leadership position in the industry, the pricing environment has become more competitive as its peers look to stem market share losses. While management continues to be positive on the future, they have lost credibility in our minds as previous positive commentary failed to materialize.
 

Kohl’s (KSS-us)

Reason We Sold: We sold KSS into share price strength driven by better traffic results, expected benefit from U.S. tax reform and optimism on its new relationship with Amazon. KSS has struggled with traffic for years, despite management’s sole focus on traffic-driving initiatives, and ultimately, we haven’t seen any evidence that secular headwinds from online shopping will reverse. While the relationship with Amazon may prove to be the initiative that finally gets traffic going, no economics have been provided on the arrangement. We continue to view consumer trends as hard to predict and quick to change and as such, prefer exposure to the companies noted above.

 

Accenture (ACN-us)

Reason We Sold: ACN was a strong performer, +64% since our initial purchase in September 2015 versus +42% and +21% for the S&P 500 and S&P/TSX Composite, respectively. We continue to view ACN’s business favorably and maintain exposure through its peers, Cognizant (CTSH) and CGI Group (GIB.A), both of which are trading lower valuations. We simply needed a source of cash for the opportunities outlined above.

Commentary: 2017 Performance Review & 2018 Outlook

  1. The portfolio being over-weight the Technology sector, which out-performed the broader markets in both the U.S. and Canada;
  2. Security selection in Materials stocks, driven by CCL Industries;
  3. Security selection in Financials stocks, driven by KKR, Citigroup and Onex.

Top detractors included:

  1. Security selection in Technology stocks, driven by Celestica and Amdocs and the lack of exposure to Apple and Facebook;
  2. Security selection in Consumer Discretionary stocks, driven by Omnicom and Whirlpool and the lack of exposure to Amazon;
  3. Security selection in Industrials stocks, drive by Apogee.

 
 
 

Caldwell Balanced Fund Performance 2017

Table 1 - Top and bottom contributors to performance in 2017

One of the more interesting things about 2017 was the apparent shift in investor psychology. Up until the latter part of the year, fear (is this the top? are we headed for another crash?) and disbelief/skepticism (how can markets make new highs with Brexit and Trump), seemed to dominate investor thinking. As markets continued to reach new highs, however, ‘fear of loss’ seemed to shift to ‘fear of missing out.’ It has once again become exciting for people to talk about the markets and the amount of questions and money being thrown at unproven business models in digital currencies and marijuana is telling. While these are signs that the market is closer to a top than a bottom – we buy into the ‘cycle of emotion’ where market bottoms coincide with extreme fear while tops come with extreme exuberance – predicting the timing of when the top will occur is anyone’s guess. This creates difficulty given we live in a world where performance returns are published on a daily basis. Most pundits expected higher volatility in 2017 (an erroneous forecast). That forecast has now shifted into 2018.

 

Our recommendation to investors is to have a conversation with their investment advisors on cash needs. If money is required in the next year or two, it may be wise to lock in some gains.

 

While not evident by performance last year, we continue to believe that a focused portfolio of ~25 stocks targeted at select company-specific opportunities will serve investors well going forward. As outlined above, we have made meaningful changes to the portfolio in the last several months. Studying where we have recently under-performed, while we owned high quality companies trading at attractive valuations, these companies lacked catalysts or growth opportunities to move the share prices higher. This is something we have targeted in the purchases made since this past summer; results on these investments have been encouraging thus far and we look forward to tracking the portfolio’s progress as we move forward.

We appreciate your continued support.
 
Best Regards,
Portfolio Management 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 Caldwell Balanced Fund’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 Caldwell Balanced Fund is a publicly offered mutual fund that offers its securities pursuant to a simplified prospectus dated July 20, 2017. Inception Date: Series A – March 1, 1990, Series F – July 4, 2014, Series M – July 15, 2016. Principal distributor: Caldwell Securities Ltd.

January 2018 | Bond Strategy Update

The Role of Fixed Income in a Portfolio

The Role of Fixed Income in a Portfolio

Risk Management is an important process in managing an investment portfolio. Proper diversification will lower the overall risk in a portfolio, likely offering the investor a higher level of comfort. The result is a lower degree of fluctuations in the performance of the portfolio.

To achieve proper diversification, it is essential that components in the portfolio behave differently in changing environments. Simply put, it is important that not every item in a portfolio goes up and down together. When one asset class goes down, the other asset class should go up and offset the overall risk level.

Government bonds have negative correlations to equities and corporate bonds. As valuations in equities climb and corporate bond portfolios become more vulnerable, the case for re-balancing and buying insurance becomes stronger. As stock markets reach new highs, it is prudent to start buying insurance, such as government bonds.

The Outlook for Government Bonds

The Bank of Canada and the U.S. Federal Reserve have been raising short-term interest rates in an attempt to return them to more normal levels. They are not motivated by rising inflation, or robust economic growth. Inflation has been very tame and economic growth uneven. Central banks, however, have less and less control in longer-term interest rates, which are determined by growth and inflation expectations. Since these expectations are benign, longer-term interest rates have not risen commensurately with short-term interest rates. This is solid evidence of moderating demand for longer-term capital and, interest rates being the price of money. As the central banks get closer to the end of their interest rate increase campaigns, the prospect of lower longer-term interest rates becomes stronger, making longer-term government bonds more desirable, as lower interest rates means higher bond prices.

The 0.25% interest rate increase by the Bank of Canada on January 17, 2018 had little or no impact on longer-term interest rates. Judging from job losses due to the closing of Sears, the troubled Carillion, and the legislated hike in minimum wage, the employment picture could deteriorate in 2018. The elevated level of household debt in Canada (the highest among the major industrialized economies) will amplify the impact from the interest rate increases. Going forward, longer-term interest rates are more likely to decline meaning bond prices rise.

The Caldwell Income Fund

The Caldwell Income Fund (“the Fund”) is designed to invest only in AAA-rated Federal Government of Canada bonds, which have negative correlation to stocks and corporate bonds. Stocks and corporate bonds rise and fall in tandem. The Fund is actively managed to better protect investors during periods of rising interest rates. It is the only fixed income Fund in Canada of its kind and offers unique diversification for portfolios that already own stocks and corporate bonds. As valuations in stocks and corporate bonds approach historically high levels, AAA-rated Government of Canada bonds provide very effective, low-cost insurance for investment portfolios.

This research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst’s personal views about any and all of the securities or issuers discussed herein that are within the analyst’s coverage universe and (ii) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the provision of specific recommendations or views expressed by the research analyst in the research report. This report is produced entirely by Caldwell. All opinions, estimates and other information included in this report constitute our judgment as of the date hereof and are subject to change without notice or has been obtained from sources we believe to be reliable, but we do not guarantee its accuracy. Caldwell will furnish upon request publicly available information on which this report is based. All rights reserved. This is not an offer or solicitation of an offer to buy or sell any security investment or other product. 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 Caldwell Income Fund’s most recently filed simplified prospectus. 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, rate 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 Caldwell Income Fund is a publicly offered mutual fund that offers its securities pursuant to a simplified prospectus dated July 20, 2017. Inception Date: Series A - July 27, 1997, Series F - July 4, 2014, Series I - July 15, 2016. Principal distributor: Caldwell Securities Ltd.

December/Full Year 2017 | Caldwell Canadian Value Momentum Fund Commentary

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December Recap:

 

The Fund gained 0.6% in December versus a gain of 1.2% for the TSX Total Return Index. The Index finished 2017 with a strong commodity and 'risk on' rally with the Materials and Industrials sectors up 3.4% and 2.0%, respectively, in December, while traditionally defensive sectors were all in the negative: Telecom (-2.1%), Utilities (-1.2%), Gold (-0.4%) and Consumer Staples (-0.2%). Top CCVMF performers in December were Cargojet (CJT: +11%) and Imvescor Restaurant Group (IRG: +8.5%). We suspect that CJT moved higher on the back of strong online retail sales through the holiday season. The CCVMF sold its position in IRG following a take-out offer by MYT Group which implied a 2017 EBITDA multiple of 13.8x. The IRG trade was a successful one for the CCVMF with the stock +70% since the initial purchase on February 2, 2016 versus 38% for the TSX Total Return Index. Gains were a function of both multiple expansion and earnings growth - IRG was trading at 8.6x trailing EBITDA at the time of purchase and EBITDA grew over 20% through our holding period.

 

One stock was purchased in December: Rocky Mountain Dealerships (RME). The company owns and operates agricultural equipment dealerships with over 35 locations across Alberta, Saskatchewan, and Manitoba. After several years of weak equipment sales, the market cycle seems to have bottomed and the company is well positioned to benefit from a multi-year up-cycle. Cost and inventory reductions should lead to strong profitability as the company looks to enter a fragmented U.S. market. The CCVMF ended the year with a 38% cash position. As noted last month, we expect the cash balance to move lower as we progress through our due-diligence process on new opportunities. 

 

Full Year 2017 Recap:

 

2017 was another successful year for the CCVMF as it once again significantly out-paced its benchmark. The Fund gained 13.8% in 2017 versus a gain of 9.1% for the TSX Total Return Index for out-performance of 4.7%. *Please see below for standard performance data.  Gains in the Index were broad-based with only the Energy sector (-10%) showing a decline. Looking into the CCVMF's performance, success in 2017 was driven by both sector allocation (i.e. being in the right sectors) and security selection (i.e. being in the right stocks), with the former accounting for 2/3 of the out-performance versus the Index. 

 

Top contributors from a sector standpoint included:

  1. Security selection in Consumer Discretionary stocks, driven by Martinrea, Cogeco and BRP Inc;
  2. The CCVMF being over-weight the Industrials sector, which out-performed the broader market;
  3. The CCVMF being under-weight the poorly performing Energy sector. 

Top detractors included:

  1. Security selection in Technology stocks, driven by Celestica and Wi-Lan;
  2. The CCVMF being under-weight the Financials sector, where the fund missed out on the strong performance of the banks;
  3. Security selection in the Energy sector - although the CCVMF was under-weight energy stocks, the stocks it did own - Enerflex, North American Energy Partners and High Arctic Energy - under-performed. 
Top and Bottom CCVMF Contributors

As Table 1 shows, the top individual stock contributors out-paced the bottom contributors by a factor of 2.3x. The CCVMF also added to its winning streak of out-performing in months when the TSX Total Return Index was negative. Specifically, the Index posted negative returns in May, June and July and lost 2.1% over this three month period. Meanwhile, the CCVMF out-performed the Index in both May and June - including posting a positive return in May - and only declined 0.8% over the three month period. Since inception, the CCVMF has out-performed the Index in a down-month 20/27 times (74% success ratio) and posted a positive return 11/27 times (40% success ratio). 

Growth of $10,000

The strong result in 2017 puts the CCVMF in the top 4% of our Morningstar Canadian Equity peer group. The CCVMF's success is a function of a concentrated portfolio of 15-25 stocks where each position has a strong set of catalysts to increase its value. We continue to look forward to strong results as we progress through 2018 and beyond.

 
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.

December 2017 | Caldwell US Dividend Advantage Fund Report

 

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November 2017 | Caldwell Canadian Value Momentum Fund Commentary

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November Recap:

 

The Fund gained 0.2% in November versus a gain of 0.5% for the S&P/TSX Composite Total Return Index ("Index”). Traditionally defensive sectors such as Consumer Staples (+3.7%), Telecom (+2.4%) and REITs (+1.7%) out-performed the more cyclical sectors. Industrials (-1.5%), where the CCVMF has its largest exposure, was the worst performing sector in the market; however, security selection was strong as the fund’s weighted average return across its Industrials stocks was +1.5%.

 

Top CCVMF performers in November were Martinrea (+21.5%) and Empire Group (+11.2%). Martinrea moved higher on the back of a strong earnings report in which the company raised its long-term operating margin guidance. Martinrea is on track to double its margin level over the 2013-2019 period on the back of operational improvements, better pricing discipline and product mix. Empire moved higher on a third consecutive quarter of food inflation after 11 months of deflation. While this is positive for all grocers, Empire is also benefiting from company-specific catalysts as it announced details on a round of spending cuts that are part of a broader restructuring plan.

 

No stocks were added to the portfolio in November.

The CCVMF has significantly outpaced its benchmark over its 6+ year history and we were recently asked how we do that: what is our edge?  Our answer is that it's a combination of two things. First, our proprietary factor model helps us identify companies with strong catalysts. There are very good things happening at these companies to drive their share prices higher. The second important piece is that we own a concentrated portfolio of these high-catalyst names. One can think of the CCVMF in terms of a steak versus a sausage. There is no 'filler' in the CCVMF. The combination of owning a concentrated group of only high-catalyst names results is a portfolio with the ability to significantly out-perform the market.

The Fund held an 33% cash weighting at month end. The relatively higher cash balance is a function of two factors:

  1. There is often a lag between when stocks are sold from the portfolio to when new names are added which creates a cash balance. We executed on a number of sell signals following relatively tepid earnings reports and are now waiting for our proprietary model to produce buy signals and subsequently work through the due-diligence. We expect cash balances to move lower as we progress through this process.
  2. Investors are acknowledging the CCVMF's ability to generate alpha and the fund has started to see significant money flow into it. Our priority is to ensure this money gets wisely deployed into the market.

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.

November 2017 | Caldwell US Dividend Advantage Fund Report

 

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October 2017 | Caldwell Canadian Value Momentum Fund Commentary

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October Recap:

The Fund gained 4.8% in October versus a gain of 2.7% for the S&P/TSX Composite Total Return Index ("Index”). The Financial sector (+4%) drove the market higher on a 4.5% gain in the Banking Index. The Utilities, Consumer Discretionary, Telecom and Industrials sectors were also strong, each up over 3%, offset by declines in Energy (-0.4%) and Health Care (-0.3%). Strength in the CCVMF portfolio was broad-based with nearly 80% of stocks out-pacing their sector returns and only 4 stocks under-performing the broader market.

 

Top CCVMF performers in October were Calian Group (+16.2%), Martinrea (+11.6%) and WSP Global (+11.4%). Calian announced  a contract renewal with the Canadian Armed Forces, which removed a key overhang on the stock and provides incremental revenue opportunity with an initial four year term totaling $275 million plus an eight-year extension option for an additional $600 million. While there was no company-specific news behind Martinrea's move, strength in auto sales in both Canada and the U.S. are positive for auto-suppliers. WSP moved higher following its Analyst Day in late September. While there were no major changes to the outlook, investors walked away with increasing confidence in WSP's growth and diversification strategy and attractive runway of opportunity.

 

Two stocks were added to the portfolio in October: Chorus Aviation (CHR) and Empire (EMP.A). Chorus is in the businesses of contract flying, aircraft leasing and aviation services.  The contract flying business is dominated by a capacity purchase agreement (CPA) with Air Canada (AC) where Chorus operates scheduled service under the Air Canada Express brand. Now that investors have become comfortable with the economics and cash flow generation of the new CPA signed with AC in 2015, focus has shifted to the opportunities in growing the aircraft leasing portfolio, where Chorus has become a major player in the regional jet market. Demand in this part of the market continues to be robust as the world's fleet of regional jets is only 20-25% leased versus commercial jets at 40%+. Empire is a food retailer operating under the Sobeys, Safeway, IGA and Freshco brands. After years of poor execution following the Safeway acquisition, a new management team has been put in place to execute a turnaround plan that involves accelerating sales growth and extracting meaningful cost savings. Early progress looks promising as the company recently posted its first positive tonnage quarter after thirteen consecutive quarters of negative tonnage, while simultaneously improving margins.

 

One of the key features of the CCVMF is that it is a very complementary portfolio to other Canadian Equity strategies. The Fund's proprietary screening process allows us to identify under-the-radar companies that have tremendous opportunity to grow in value. One such company is Calian Group (noted above), whose CEO, Kevin Ford, was recently featured in the Ottawa Business Journal as the 2017 CEO of the Year. Calian was initially purchased in the CCVMF in February 2016, with the stock up nearly 80% since that time.

 

The Fund held an 11.2% 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

Peer Comparison CCVMF

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.

October 2017 | Blockchain, South Park, Keynes & Friedman

Pendragon

Blockchain, South Park, Keynes & Friedman

The creators of South Park, Trey Parker and Matt Stone, called it “Space Cash”, we call it Bitcoin. Bitcoin has been addressed in the mainstream media, and while it is true that Bitcoin may have reached a high in popularity, a quick review of history suggests that at its core, Bitcoin or something like it has been expected for some time. Technology needed to advance in order for cryptocurrencies to evolve. In 1999, Milton Friedman predicted that the evolution of the internet would have profound ramifications on our society. He also saw a role for a digital currency, as quoted below:


“I think that the Internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing, but that will soon be developed, is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B, without A knowing B or B knowing A. The way I can take a $20 bill hand it over to you and then there’s no record of where it came from.”


Bitcoin is a digital currency whose value is based upon two things: the first is the use of the payment system, or how many people buy into the story, and the second is the volume and velocity of payments running through the ledger. Many people are confused about where the value in Bitcoin comes from; Bitcoin currency does not have some arbitrary value that people are trading. Bitcoin is valuable because it is frictionless and people can exchange it with no fraud and very low, or no, transaction costs.


Bitcoin at its most fundamental level is a breakthrough in computer science. It is the first practical solution to the “double payment problem”. This longstanding problem in computer science is not new, and was originally derived from what many call the “Byzantine Generals Problem”, where a group of Generals of the Byzantine army camped with their troops around an enemy city. The troops were communicating only by messenger and the Generals needed to agree on a coordinated battle plan. Since the Generals did not trust each other, they were faced with finding a method to reach a common agreement. How can one build a network with a secure consensus with parties that don’t trust each other? The answer lies in combining cryptography and economic incentives, the foundations of a network that builds consensus in a secure fashion, or Blockchain.


This is far from the calls of a fad or Ponzi scheme. Could the value of Bitcoin go to zero? Yes! Will it be a bubble? Yes! However, the technology derived from solving the above problem is about to profoundly effect the way our society operates. Keeping an open mind is key.


The practical consequence of solving the “Byzantine Generals Problem” is that Bitcoin gives us a way for one internet user to transfer property rights to another user. The transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and no one can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.


As the Second World War was ending, economic experts of the Allies met in a New Hampshire resort to hammer out an international monetary system that would help prevent a recurrence of the Great Depression. The ensuing debate centered around two main proposals. John Maynard Keynes, the greatest economist of the 20th century, presented the British case while Harry Dexter White, one of Franklin D. Roosevelt’s key economic advisors, presented the American one. Keynes’ point was not to repeat the past. The global economy is closed and it needs a global currency and a fixed adjustment process to force the economy to deal with trade imbalances in real time, while having incentives for countries to adjust.


Keynes lost on most key points and the result was the Bretton Woods system, named after the small town in which the conference was held. As part of the agreement, it also created what would later become the International Monetary Fund and the World Bank. This served as the system of managing international trade and currencies for nearly three decades. The die was cast and it was predicted that the global economy would have another major structural adjustment in approximately 80 years, that period is upon us now.


Keynes suggested that a global medium of exchange, called Bancor, be introduced. Bancor was country agnostic. The Americans wanting the U.S. dollar to replace the Pound Sterling as the global medium of exchange refused. Keynes foresaw that the U.S. would slowly evolve from a creditor nation to a debtor nation. He also predicted that the U.S. economy would no longer be able to absorb the excess capacity that the global economy was producing and the rise of populism was going to be a certainty.


The basic problem with international trade is that imbalances can develop, with big winners and big losers. Some countries get big export surpluses, while others develop major trade deficits since the world cannot be in surplus or deficit with itself. The global economy has found it very difficult, if not impossible, to go through any needed structural adjustment without breaking out in war.


President Trump ran his election campaign on a populist agenda. Many question the ability of a centralized authority to focus on the common good of society and the desire for decentralized systems is now becoming a global phenomenon.


Bretton Woods was disassembled in 1971 when President Richard Nixon suspended the convertibility of the dollar into gold. The introduction of a digital currency, in a perverse way provides a solution that Keynes would have preferred in 1945. Bitcoin may not last, but the technology behind it will. The consequences of solving this important computer science question cannot be underestimated.


No one knows who will be the winners during this new phase of evolution, but we do know this new regime will be life changing for many. The global economy continues to evolve from a world based on analog to an economy based on its true native digital state. We can be sure that too much capital will be allocated and a bubble will be created, just as it happened during the internet of information in 1999, as well as the building of the railroads throughout the 19th century. That is the normal part of the evolutionary process. This time it is not different.


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.

October 2017 | Caldwell US Dividend Advantage Fund Report

 

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