Author: Jamie Houston

US Equity Strategy

Dividend Growth

Note: LTM Dividend Growth is the median of the actual trailing 12-month dividend growth of the individual stocks held by Strategy or Index constituents as reported by Bloomberg on March 31, 2025. FTM Dividend Growth is the median of the Bristol Gate Model’s forward 12-month prediction for the individual stocks held by the Strategy and the median of consensus estimates for the constituents of the Index as of March 31, 2025. Companies without a consensus dividend forecast were excluded, as were dividend initiators due to a lack of prior year comparable.

Source: Bloomberg, FactSet, Bristol Gate Capital Partners.

Portfolio Results

The Bristol Gate U.S. Equity Strategy outperformed the S&P 500 Total Return Index during a volatile Q1. The quarter began with optimism driven by the inauguration of Donald Trump and an anticipated pro-business agenda, including tax cuts and deregulation, driving the Index above 6,100 by late January. However, February and March saw sharp declines in the market amid concerns about economic growth, inflation, and tariff-related uncertainties. The administration’s inconsistent tariff policies significantly increased market uncertainty, negatively impacting business confidence as well as consumer and investor sentiment.

Key Contributors

Sector allocation and stock selection aided the strategy’s outperformance in Q1. Leading contributors included GE Aerospace, McKesson, and Marsh & McLennan. The portfolio’s underweight to the “Magnificent Seven” benefitted the strategy during the quarter. While these companies drove market performance in 2024, their average decline of 16% this quarter led to outsized declines in the market.

Key Detractors

The traditional defensive sectors—Consumer Staples, Energy, Real Estate, and Utilities— performed well and detracted from our relative performance during the quarter. These sectors offer higher dividend yields but lower dividend growth potential, aligning less closely with our strategy of prioritizing companies capable of sustained high dividend growth. During periods of economic uncertainty or heightened recessionary risks, investors often shift towards sectors offering higher yields and lower volatility rather than future dividend increases.

Broadcom, Microchip, and Applied Materials were amongst the leading laggards. Broadcom and Applied Materials were impacted by souring investor sentiment around the AI theme. We still believe Broadcom and Applied Materials are extremely well positioned to take advantage of durable long-term trends. Microchip continues to navigate a difficult demand environment following broad inventory adjustments across its customer base. The company held an Investor Day in early March where management provided a detailed nine-point restructuring plan, implementing change across the company. Microchip’s realized savings from these actions should total ~$140M. Furthermore, management cited improved bookings and a stabilized backlog, potentially indicating the bottom of the inventory correction, albeit that was prior to the tariff announcements discussed below.

Portfolio Transactions

During the quarter, we initiated positions in Eli Lilly and Co. (LLY), Westinghouse Air Brake Technologies Corp. (WAB), and Domino’s Pizza Inc. (DPZ). These purchases were primarily funded by exiting CSX Corp. (CSX), Corteva Inc. (CTVA), and Lowe’s Companies Inc. (LOW). The rationale for exiting the names was primarily driven by reduced dividend growth expectations.

Eli Lilly was added after a pullback, providing an attractive entry point. We’re encouraged and anticipate sustained revenue and earnings growth driven by its leading diabetes and obesity treatments, especially given increasing insurance coverage due to therapeutic validation in related comorbidities for its GLP-1 drugs. We expect ongoing dividend growth at a robust mid-teens rate or higher.

Westinghouse Air Brake Technologies is a global market leader in freight and passenger rail technologies, which benefits from a significant installed base that generates stable, recurring revenue. Its expanding international presence and its exposure to the domestic locomotive fleet’s upgrade cycle offer compelling growth opportunities. WAB also maintains a solid track record of consistent dividend increases and announced an additional 25% dividend increase in February.

Domino’s Pizza, the largest pizza company in the world, operates an asset-light, highly franchised model (99% franchised), generating strong free cash flow and high return on capital. The company consistently gains market share within the fragmented U.S. pizza industry, driven by superior unit economics, technology leadership, incremental aggregator partnerships (e.g., Uber Eats, DoorDash), and a powerful brand that appeals to value-conscious consumers. Domino’s substantial international growth opportunity, particularly in China and India, provides significant long-term upside. Plans for store expansion include targeting 18,500 international stores by 2028 (versus approximately 14,400 currently) and ultimately 40,000 units globally.

During the quarter, we trimmed positions in Broadcom, MSCI, Moody’s, Mastercard, and GE Aerospace, reallocating capital toward the new positions, along with increasing our weighs in Applied Materials and Microchip, as part of our portfolio rebalancing process.

Outlook

90% of our holdings beat consensus earnings estimates, delivering median EPS growth of 12% (14% average) during the most recent earnings season. Bristol Gate remains confident in our portfolio’s fundamental strength.

We are continually monitoring the potential tariff impacts on our portfolio and remain diligent in our review. In our view, the portfolio has limited direct tariff exposure. Half of the portfolio consists of service-oriented businesses, largely insulated from tariff impacts. The remaining names have proactively developed strategies such as supply chain adjustments and pricing initiatives to mitigate potential risks.

Our concern lies in the indirect risks posed by tariffs, specifically the potential for these policies to spark broader economic instability or a recession. The economic consequences of President Trump’s “Liberation Day” tariffs have been swift and significant. The policy marks the most expansive and disruptive tariff implementation since the Smoot-Hawley Tariff Act of 1930. The Trump tariffs, initially a universal 10% tariff on all imported goods with subsequent higher rates targeting specific nations, quickly led to escalations with various trade partners, highlighted by China’s perceived defiance and lack of cooperation to negotiate. Market reaction was severe: the S&P 500 dropped 10.5% over two trading sessions from April 3rd to April 4th, marking the largest two-day decline since the depths of the Global Financial Crisis as investors rapidly priced in fears of retaliatory tariffs, rising costs for both businesses and consumers, weakening demand, and declining corporate profitability.

Market events of this magnitude erode investor confidence, prompting investors to make impulsive decisions, such as exiting the market, often to their detriment. While the probability of a global recession has increased, we caution investors against adopting an overly defensive posture for several compelling reasons:

• the administration’s seemingly unpredictable tariff policies might yield positive engagement
• the initial broad-based tariffs could be a strategic “shock and awe” tactic intended to strengthen negotiating leverage and potentially paving the way toward more balanced, long-term trade policies
• the portfolio is exceptionally well-equipped to navigate, and even benefit from challenging economic environments. Our holdings include industry-leading firms characterized by solid market positions, strong balance sheets, consistent generation of substantial free cash flows, and proven resilience through past economic downturns
• these companies are strategically positioned not only to endure economic stresses but to leverage market downturns by acquiring weaker competitors or making strategic self funded investments, enhancing their long-term market strength

These businesses have consistently demonstrated a commitment to growing dividends. Eight of our holdings announced dividend increases in Q1/25 averaging approximately 15%. Given the portfolio companies’ robust financial health, we anticipate continually increasing dividend payouts, providing our investors with reliable and growing income streams, even amid market turbulence.

We will look to take advantage of the volatility and upgrade the portfolio where opportunities arise.   Inevitably volatility spikes are often excellent opportunities to deploy or reposition capital to build long term wealth.

In summary, despite the current unknowns, we firmly believe our thoughtfully constructed portfolio offers an attractive investment opportunity. Our strategic selection of resilient, market-leading companies positions us to manage risks effectively while continuing to generate strong returns for our investors with the utmost confidence. Strategies that pursued broader diversification, such as the S&P 500 Equal Weight Index, also underperformed the S&P 500 Index (weighted by market capitalization). The Equal Weight Index was up by approximately 13% in 2024.

Source: Bristol Gate Capital Partners. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Canadian Equity Strategy

Dividend Growth

Note: LTM Dividend Growth is the median of the actual trailing 12-month dividend growth of the individual stocks held by Strategy or Index constituents as reported by Bloomberg on March 31, 2025. FTM Dividend Growth is the median of the Bristol Gate Model’s forward 12-month prediction for the individual stocks held by the Strategy and the median of consensus estimates for the constituents of the Index as of March 31, 2025. Companies without a consensus dividend forecast were excluded, as were dividend initiators due to a lack of prior year comparable.

Source: Bloomberg, FactSet, Bristol Gate Capital Partners.

Portfolio Results

The Bristol Gate Canadian Equity Strategy underperformed the S&P/TSX Composite Index in Q1. Markets started the year strong, however, February and March saw increased volatility amid growing concerns about economic growth, inflation, and tariff-related uncertainties. Despite the volatility, the Index ended the quarter in positive territory led by Materials (gold companies) delivering an outsized 20.3% return (over 1500 basis points higher than the next closest sector. Utilities and Energy rounded out the top 3 sectors in Q1.

Key Contributors

Stock selection within Financials, TMX Group and Intact Financial were the leading contributor in Q1. Intact delivered strong quarterly results that beat analyst expectations driven by lower than expected catastrophe losses and stronger than expected underwriting results. Intact raised its dividend by 10%, marking the 20th consecutive annual dividend increase.

TMX Group began February on a strong note, after posting better than expected quarterly results that continued through the rest of the period. Management successfully diversified roughly half of the company’s revenue sources with subscription-based value-add services and the balance in the traditional trading and capital formation related businesses. investors received the news positively, as TMX Group closed its valuation gap relative to international exchange peers. Of note, the company also raised its dividend by 5%.

Stock selection in Consumer Discretionary, led by Dollarama was also a positive contributor. Towards the end of Q1, the company announced the acquisition of the leading Australia discount retailer, The Reject Shop, adding another growth lever.

Key Detractors

A portfolio underweight to Materials (gold companies), negatively impacted relative returns in the quarter as gold prices rose close to 20%. Traditionally, the mining sector has not produced consistent dividend growers and disciplined capital allocators, resulting in a meaningful underweight.

On an absolute basis, TFI International, Broadcom and Jamieson Wellness were our leading laggards in Q1.

TFI International declined significantly after reporting disappointing quarterly results in February. Subdued freight volumes combined with market share losses, specifically in the US, where larger competitors used their scale and cost advantage in a challenging environment, hurt results. While the results are a disappointing start for a new holding, we have faith in management both as operators and capital allocators. Bristol Gate expects management to address and improve efficiencies in the performance of its US business over time.

Broadcom was impacted by souring sentiment around the AI theme. We believe the company is extremely well positioned to take advantage of durable long-term trends.

Jamieson Wellness underperformed despite demonstrating continued strong international growth and Canadian market leadership as reflected in solid quarterly results. Late Q1, the company hosted an investor event where it highlighted various opportunities, including continuing to grow profitably in the US and China. Bristol Gate believes the market does not fully appreciate these long-term opportunities.

Portfolio Transactions

In Q1, we trimmed Broadcom and reinvested the proceeds into Stella Jones and Premium Brands as part of our regular quarterly rebalancing process.

Outlook

We remain confident in the portfolio’s fundamental strength. Approximately 70% of our holdings surpassed revenue and earnings expectations, achieving median growth rates of 6.5% and 13.0%, respectively.

We are continually monitoring the potential tariff impacts on our portfolio and remain diligent in our review. In our view, the portfolio has modest direct tariff exposure. Many of our holdings attribute a large portion of their revenues to the US, but they also maintain production capacity within the US, helping mitigate tariff implications. The remaining holdings have proactively developed strategies such as supply chain adjustments and pricing initiatives to mitigate risks and potential exposure. Like our US Strategy, the primary risk remains indirect—potential tariffs triggering broader economic stress or a recession.

Our companies remain well-positioned due to market leadership, robust balance sheets, strong cash flows, and a proven track record. We expect our companies to leverage economic downturns through strategic investments and acquisitions, supporting sustained dividend growth averaging 11.2% year-to-date. Overall, the portfolio continues to represent an attractive opportunity in an uncertain market.

Source: Bristol Gate Capital Partners. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Firm Update

To all our clients, thank you for your ongoing support and trust. We are determined to do everything we can to provide you income growth and strong investment returns in the future.  

Sincerely, 

The Bristol Gate Team 

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Important disclosures

There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.

The information contained herein is obtained from multiple sources that are believed to be reliable. However, such information may not have been verified, and may be different from the information included in documents and materials created by a sponsor firm in whose investment program a client participates. Some sponsor firms may require that these Bristol Gate materials are preceded or accompanied by investment profiles or other documents or materials prepared by such sponsor firms, which will be provided upon a client’s request. There may be discrepancies between Bristol Gate’s performance returns and the returns included in a sponsor firm’s profile document (for example, but not limited to, differences in account size/type, portfolio management strategies, the number of securities held, average account size, inclusion of institutional or mutual fund accounts, etc.)  For additional information, documents and/or materials, please speak to your Financial Advisor.

US Equity Strategy returns in this report refer to the Bristol Gate US Equity Strategy Composite (the “US Composite”). The US Composite consists of equities of publicly traded, dividend paying US companies. The US Composite is valued in US Dollars and for comparison purposes is measured against the S&P 500 Total Return Index. The US Composite’s Investment Advisor, Bristol Gate Capital Partners Inc., defines itself as a portfolio manager, exempt market dealer and investment fund manager (as per its registration in Ontario, its principal regulator in Canada) and is also a Registered Investment Adviser with the U.S. Securities and Exchange Commission (the “SEC”). The Investment Advisor’s objective is to select companies with positive dividend growth, and which collectively will generate over the long term a growing income and capital appreciation for investors.  The inception date of the US Composite is May 15, 2009. The US Dollar is the currency used to measure performance, which is presented on a gross and net basis and includes the reinvestment of investment income. The US Composite’s gross return is gross of withholding tax prior to January 1, 2017 and is net of withholding tax thereafter.  Net returns are calculated by reducing the gross returns by the maximum management fee charged by Bristol Gate of 1%, applied monthly. Actual investment advisory fees incurred by clients may vary. There is the opportunity for the use of leverage up to 30% of the net asset value of the underlying investments using a margin account at the prime broker.  Thus far no material leverage has been utilized.  An investor’s actual returns may be reduced by management fees, performance fees, and other operating expenses that may be incurred because of the management of the US Composite.  A performance fee may also be charged on some accounts and funds managed by the firm. Bristol Gate claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please email us at info@bristolgate.com. 

The S&P 500® Total Return Index measures the performance of the broad US equity market, including dividend re-investment, in US dollars. This index is provided for information only and comparisons to the index has limitations. The benchmark is an appropriate standard against which the performance of the strategy can be measured over longer time periods as it represents the primary investment universe from which Bristol Gate selects securities. However, Bristol Gate’s portfolio construction process differs materially from that of the benchmark and the securities selected for inclusion in the strategy are not influenced by the composition of the benchmark. For example, the strategy is a concentrated portfolio of approximately equally weighted dividend-paying equity securities, rebalanced quarterly whereas the benchmark is a broad stock index (including both dividend and non-dividend paying equities) that is market capitalization weighted. As such, strategy performance deviations relative to the benchmark may be significant, particularly over shorter time periods. The strategy has concentrated investments in a limited number of companies; as a result, a change in one security’s value may have a more significant effect on the strategy’s value.

In addition to the US Equity strategy’s benchmark described above, the following additional Index data may be presented for information purposes only and comparisons to this index has limitations:

S&P 500 ® Total Return Dividend Aristocrats Index measures the performance of a subset of S&P 500® Index companies that have increased their dividends every year for the last 25 consecutive years. This Index focuses on historical dividend growth, whereas Bristol Gate’s US Equity strategy’s securities are selected based on future dividend growth.

SPDR® S&P 500® ETF Trust (SPY US) sourced from Bloomberg has been used as a proxy for the S&P 500® Total Return Index for the purpose of providing non-return-based portfolio statistics and sector weightings in this report.  SPY US is an ETF that seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index.

Canadian Equity Strategy returns in this report refer to the Bristol Gate Canadian Equity Strategy Composite (the “Canadian Composite”). The Canadian Composite consists primarily of equities of publicly traded, dividend paying Canadian companies. The Canadian Composite is valued in Canadian Dollars and for comparison purposes is measured against the S&P/TSX. The Canadian Composite’s Investment Advisor, Bristol Gate Capital Partners Inc., defines itself as a portfolio manager, exempt market dealer and investment fund manager (as per its registration in Ontario, its principal regulator in Canada) and is also a Registered Investment Adviser with the U.S. Securities and Exchange Commission (the “SEC”). The Investment Advisor’s objective is to select companies primarily from the S&P/TSX universe with positive dividend growth and which collectively will generate over the long term a growing income and capital appreciation for investors.  The inception date of the Canadian Composite is July 1, 2013. Returns are presented gross and net of fees and include the reinvestment of all income. The Canadian composite’s gross return is gross of withholding tax prior to January 1, 2017 and is net of withholding tax thereafter. Net returns are calculated by reducing the gross returns by the maximum management fee charged by Bristol Gate of 0.7%, applied monthly. Actual investment advisory fees incurred by clients may vary.  An investor’s actual returns may be reduced by management fees, performance fees, and other operating expenses that may be incurred because of the management of the Canadian Composite.  A performance fee may be charged on some accounts and funds managed by the firm.  Bristol Gate claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please email us at info@bristolgate.com. 

The returns have been converted into Canadian Dollars using the prevailing Canadian/United States dollar exchange rate.

The S&P/TSX Total Return Index measures the performance of the broad Canadian equity market, including dividend re-investment, in Canadian dollars. This index has been provided for information only and comparisons to the index has limitations. The benchmark is an appropriate standard against which the performance of the strategy can be measured over longer time periods as it represents the primary investment universe from which Bristol Gate selects securities. However, Bristol Gate’s portfolio construction process differs materially from that of the benchmark and the securities selected for inclusion in the strategy are not influenced by the composition of the benchmark. For example, the strategy is a concentrated portfolio of approximately equally weighted dividend-paying equity securities, rebalanced quarterly whereas the benchmark is a broad stock index (including both dividend and non-dividend paying equities) that is market capitalization weighted. As such, strategy performance deviations relative to the benchmark may be significant, particularly over shorter time periods. The strategy has concentrated investments in a limited number of companies; as a result, a change in one security’s value may have a more significant effect on the strategy’s value.

iShares Core S&P®/TSX® Capped Composite Index ETF (XIC CN) sourced from Bloomberg has been used as a proxy for the S&P®/TSX® Total Return Index for the purpose of providing non-return-based portfolio statistics and sector weightings in this report. XIC CN is an ETF that seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses.

This Report is for information purposes and should not be construed under any circumstances as a public offering of securities in any jurisdiction in which an offer or solicitation is not authorized. Prospective investors in Bristol Gate’s pooled funds or ETF funds should rely solely on the fund’s offering documents, which outline the risk factors associated with a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax implications of any investment in a Bristol Gate fund.

This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.

A Note About Forward-Looking Statements

This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.

These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events.

Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.

Performance Summary

During the quarter, the US Equity Strategy underperformed the S&P 500 Index while the Canadian Equity strategy outperformed the S&P/TSX Composite. Both the strategies also continued to outpace their respective benchmarks in terms of dividend growth. For a more detailed discussion on performance see each Strategy’s respective section below.

Portfolio Dividend Growth – Trailing and consensus forward 12 months.

Note: Last 12 months (“LTM”) Dividend Growth is the median of the actual trailing 12-month dividend growth of the individual stocks held by Strategies or Index constituents as reported by Bloomberg as at June 30, 2024. Forward 12 months (“FTM”) Dividend Growth is the median of the Bristol Gate Model’s forward 12-month prediction for the individual stocks held by the Strategies and the median of consensus estimates for the constituents of the Indices as of quarter end. Companies without a consensus dividend forecast were excluded.

Source: Bloomberg, FactSet, Bristol Gate Capital Partners.                                                                                                                                                                                                 

15 Years Back and 15 Years Forward

In May 2024, Bristol Gate celebrated its 15-year anniversary of our US Equity Strategy. As we did when we reached our ten-year anniversary, we thought it would be worth revisiting what has allowed us to succeed over that time, and why we believe this approach will continue to offer opportunities for many years to come.

Our approach is one of high conviction: We build concentrated portfolios of 22 stocks. Our conviction is based on evidence: history tells us that investing in the highest dividend growers results in attractive long-term results.  Concentration ensures a certain standard must be met before we consider investing our clients’ and our own capital.

Exhibit 1: The Opportunity

The chart above illustrates if you would have had the foresight to invest in the best dividend growth stocks (“Top Quintile”) in the S&P 500 over the period. The period referenced is from Jan 1, 1990, to Dec 31, 2023, in USD where each theoretical portfolio presented for the stated category was constructed from an equal weight basket of stocks selected from the S&P 500 universe and reconstituted annually. For illustration purposes only, past performance is not indicative of future results. Source: Bristol Gate Capital Partners, Bloomberg

Everything we do begins with finding and predicting high dividend growth. Exhibit 1 demonstrates the theoretical performance of the high dividend growth universe if you were able to perfectly predict dividend growth. Our own predicted universe is adjusted with the addition of key investment processes we have followed since our outset to further improve our choices to make the portfolio better suited to our clients. These have not changed since our inception and are repeated below:

Keys To Our Successful Investment Strategy

• Investing in high-return businesses: Companies capable of growing and returning excess free cash flow through dividends.
• Avoiding excessive risk: Steering clear of companies with limited operating history, poor balance sheets, or weak business models.
• Reducing valuation risk: Using equal weighting and quarterly rebalancing to improve an investor’s return on each holding, particularly for high-quality companies.
• Building a concentrated portfolio: Selecting and balancing risks to produce lower downside capture.

Our Investment Results: The outcome of our process

As process-driven investors, we firmly believe our results are the natural outcome of our investment process. The chart below plots our performance against our peers in the dividend and income universe over the last 15 years.

Exhibit 2: Our 15 Year Returns vs Dividend & Income Peer Group

Source: eVestment – July 12^th, 2024. The eVestment US Dividend & Income Peer Group is a custom universe we have created based on a review of long-only dividend and/or equity income focused US large-cap strategies within the eVestment database.  Bristol Gate Capital Partners Inc. pays a licensing fee to eVestment to access their database. There is a risk of loss inherent in any investment; past performance is not indicative of future results. See full performance history of Bristol Gate US Equity strategy in the commentary section and important disclosures at end of document.

When compared to our peers in the dividend investing universe, these results stand out. As a forward-looking dividend strategy focused on dividend growth, we believe we are in a better position to deliver returns for investors. Over 15 last years, we have outperformed the S&P 500 Dividend Aristocrats Index, one of the most well-regarded dividend growth benchmarks, putting us in select company. Furthermore, our ability to compete with the S&P 500, in a period that has not favoured dividend strategies, is something we take great comfort in. 

Our long-term success has included challenging periods. When we measure our performance against our investable universe of dividend-paying stocks, you can see we have had years where we underperformed that universe:

Exhibit 3: Performance versus investable universe of dividend paying stocks in the S&P 500 Index.

Source: Bristol Gate Capital Partners, Bloomberg. As at June 30, 2024. Gross and net returns. Universe methodology: At the beginning of each year own a portfolio of equal-weighted stocks of companies from S&P 500 that paid a dividend in the previous 12 months, rebalanced and reconstituted annually. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Active investment strategies will inevitably have periods of underperformance, but we believe a well-constructed and proven approach like high dividend growth investing will be an odds-on favourite for long-term outperformance.

Our Process: The foundation of our results

The strength of our performance is backed up by our steadfast adherence to our investment principles. Since our firm’s inception, our investment process has started from a singular focus: Predicting dividend growth. Our model has evolved over time, leveraging advanced data analysis and machine learning to improve our ability to identify top dividend growers. This model is the first pillar in our process, followed by traditional fundamental analysis to validate dividend growth predictions, confirm business quality, and estimate intrinsic value, reducing valuation risk. The final pillar in our process is once again driven by data science. We use correlation and statistical analysis to identify potential risks and ensure that while our portfolios are concentrated, that they are also appropriately diversified. By employing an equal-weighted approach to portfolio construction and rebalancing quarterly to capitalize on short-term mispricing, we believe our process enhances the return potential for each holding.

There is no secret to what we do. Our returns are driven by the returns generated by the companies we own. Our focus on dividends is based on our historical understanding of the high dividend growth space. We believe dividends impose discipline amongst company management teams, as the market severely punishes cutting a dividend. We focus on fast-growing dividends because this growth is a strong signal of underlying earnings power and future free cash flow growth.

Investing in companies which generate high operating profits and reinvest those profits back into their businesses is a virtuous circle that leads to compounding intrinsic value. If we can identify and buy those companies at a fair price, then high long-term investment returns should follow. Our conceptual return framework succinctly details the power of owning a business that can generate high incremental returns on capital:

Exhibit 4: Conceptual Return Framework

For illustration purposes only. The above is not a targeted return nor a projected return; it is an application of the Gordon Growth model and how we believe we have generated historical returns for the Bristol Gate US Equity Strategy.

Our culture of continuous improvement drives us to consistently invest in finding ways to improve our process, enhancing our informational and analytical edge. Since we published our ten-year letter, we have leveraged our data science team to continue to look for ways to improve investor outcomes:

• We have made improvements to our quarterly rebalancing process, moving to thresholds that must be exceeded before names are rebalanced back to equal weight. Our data science team found that this adjustment lowered trading costs and had no impact on our alpha potential.
• We continue our efforts to not only improve the accuracy of our current model’s dividend predictions but have also been able to extend our prediction further beyond 12 months.
• We have built portfolio composition risk management tools to seek to better optimise risk.
• We continue to study our high dividend growth universe to better understand the investing signals from our models and the how persistent high dividend growth can deliver higher returns. 

We believe our ‘human & machine’ approach provides us with a sustainable behavioral edge, which is the key to active management success. We leverage technology to eliminate biases that otherwise impair traditional managers. Bristol Gate remains committed to continuous improvement and learning, aligning our interests with our investors for continued success in the future.

US Equity Strategy

Market Recap

The S&P 500 rose over 4% in the second quarter, boosted by surging semiconductor stocks and tech mega-caps even as the majority of the index declined. The economy is showing signs of improvement however, as S&P 500 companies excluding the Magnificent 7 are starting to show healthier earnings growth.

Portfolio Results

The US Equity strategy underperformed the benchmark in the period. The narrowness of the market has been a headwind for all dividend-oriented strategies, but our results are in line with those of the dividend paying universe year-to-date.

Contributors

On a relative basis, stock selection in the Health Care sector and no exposure to the Consumer Staples and Energy sectors were among the primary contributors to performance. 

Broadcom, Applied Materials and McKesson were amongst the largest contributors to performance on an absolute basis.

Broadcom and Applied Materials continue to benefit from the significant investments in Artificial Intelligence and the resulting strong demand for chips

McKesson continues to benefit from an attractive valuation in our opinion and execution against its strategic plan.

Detractors

On a relative basis, in addition to not owning Nvidia (which doesn’t meet our criteria for high dividend growth), stock selection in the Information Technology sector, the overweight and stock selection in Materials and Financials were among the primary detractors.

Sherwin Williams, Lowe’s and MSCI were amongst the largest detractors on an absolute basis.

Sherwin-Williams stock underperformed after the company delivered lower first-quarter earnings and revenue than expected as demand in their DIY-segment was softer than anticipated.

Lowe’s underperformed despite strong quarterly results that saw the company beat estimates for both revenue and earnings as an anticipated decline in same store sales was better than feared. Softer “do-it-yourself” big ticket spending was partially offset by strength in the Pro segment as well as in online sales, and we were pleased to see the company took share in the important Pro segment this quarter.

MSCI’s stock price declined during the period on concerns about lower subscription revenue growth, higher expenses and lower net recurring revenue across segments. The lower subscription revenue was due to elevated cancellations and lower retention but were mostly due to client merger activity and the resulting downsizing for shutting funds. Excluding this, retention was 94% vs the 92.8% reported. Our view is that stock price reaction is an overreaction to short term issues and the long-term secular tailwinds driven by transparency and measurement between assets owners and asset managers remain firmly intact.

Transactions

During the quarter, our investments in Allegion plc and Roper Technologies Inc. were sold, both primarily due to lower dividend growth.

We initiated new investments in GE Aerospace (GE) and Old Dominion Freight Line Inc (ODFL). We are confident that both companies will increase their dividends at high rates in the near term.

GE Aerospace is a global aerospace propulsion, services, and systems leader, operating in an oligopolistic industry with high barriers to entry. Strong partnerships with major aircraft manufacturers like Boeing and Airbus ensure a steady demand for GE engines. In addition, approximately 70% of GE Aerospace’s revenue comes from services, providing a stable and resilient income stream. In addition, GE’s proprietary lean operating model, has led to significant operational improvements which we believe will help management achieve their goal of returning 70%-75% of available free cash flow to shareholders through dividends and buybacks.

ODFL is the second largest North American less-than-truckload (“LTL”) motor carriers, providing regional, inter-regional and national LTL services through a single integrated, union-free organization. Servicing a growing and consolidating market, ODFL operates in an industry that has high barriers to entry due to the hub and spoke nature of its distribution system. We believe the company is the best-in-class operator with an industry leading operating ratio and a strong history of returning capital to shareholders. ODFL’s attractive revenue growth, low operating ratio, strong free cash flow generation, high returns on invested capital, and steady stream of reinvestment opportunities have fueled stock returns historically.

As per our quarterly rebalancing process, we reduced our investments in Applied Materials Inc., Cintas Inc., and Broadcom Inc. We reinvested the proceeds into MSCI Inc., Corteva Inc., Zoetis Inc., and UnitedHealth Group.

Outlook

We continue to experience a very bifurcated market, led by the Magnificent 7. While these companies continue to post impressive results, the law of large numbers will increasingly challenge growth going forward. We believe the bar is set much lower for other areas of the market where valuations and growth expectations are more reasonable, if not conservative, and continue to seek opportunities in those areas.

Source: JPMorgan Guide to the Markets, June 30, 2024.

The benefit of having a disciplined investment process is that it allows you to weather periods like this whenever they arise and to focus on what has allowed us to achieve successful outcomes for our clients for 15 years, which is owning a concentrated portfolio of high quality, high dividend growth stocks. Dividend strategies have struggled in the current environment from a relative performance perspective:

Source: Bristol Gate Capital Partners, Morningstar, Bloomberg. As at June 30, 2024. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

We know that these periods do not last forever. Eventually, fundamentals matter, and we continue to focus on them. Nine portfolio companies have announced dividend increases this year averaging in excess of 13%. From the perspective of their operating results, we continue to see the quality of the portfolio come through.  Our holdings have delivered median ~10% revenue growth and ~8% earnings growth, both superior to that of the broad market. Over the long-term, we believe those fundamentals and our approach will be rewarded.

Source: Bristol Gate Capital Partners. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Canadian Equity Strategy

Market Recap

The S&P/TSX Composite declined by 0.5% during the second quarter. The Telecom, Information Technology and Real Estate sectors all experienced a negative return as the Canadian economy remains challenged. The Bank of Canada cut its policy interest rate in June for the first time since halting the hiking cycle in mid-2023 in an attempt to boost growth.

Portfolio Results

The Canadian Equity strategy outperformed the index during the quarter. 

Contributors

On a relative basis, stock selection in the Consumer Discretionary, Industrials and Financials sectors were the primary contributors to returns.

Dollarama, Stella-Jones and Element Fleet Financial were amongst the largest contributors to performance on an absolute basis.

Dollarama continues to deliver strong top and bottom-line growth. The firm also announced they increased their stake in Latin American retailer Dollarcity to over 60%.

Stella-Jones’s full year results demonstrated that despite normalization on pole volumes, their ability to raise prices remains strong. The ties segment also outperformed expectations both in volumes and price. All this resulted in much better than estimated operating margins and strong year over year earnings growth.

Element Fleet also outperformed after posting strong results, reaching all-time highs in revenues and issuing strong guidance

Detractors

On a relative basis, the overweight and stock selection in Real Estate, stock selection in Information Technology and a lack of exposure to the Energy sector detracted from returns in the quarter.

Open Text, InterRent Real Estate Investment Trust and Canadian National Railway were amongst the largest detractors on an absolute basis.

Open Text experienced a significant share decline when they reported their quarterly results that raised concerns around the rate at which they are transitioning their customers from on-premise to their cloud offerings and the capital expenditures that may be required to achieve their goals. The positive takeaway was that demand is there and the earlier than expected close of its disposition of AMC lowered the company’s leverage levels to management’s target rate, allowing for a capital allocation model of 50% towards buybacks and dividends and 50% towards cloud M&A. We continue to watch how the business progresses against our thesis and follow our process. 

InterRent and the broader residential real estate names underperformed this quarter despite the move from the Bank of Canada to initiate a rate cut cycle, a positive event for the sector in general. The underperformance happened despite a still favorable market environment with a significant shortage of housing in many of the areas that the company is operating. The moves from government to stem the record-breaking immigration flows of the past few years were partly responsible, however it will take some time to see an actual decrease in the population growth and will not materially change the residential real estate market’s supply and demand dynamics for the foreseeable future. We continue to monitor the operating results the company is delivering against all of this.

Canadian National Railway, and therefore the fund’s exposure to the rails, was for the quarter one of the largest detractors on an absolute basis, but after the sale of Canadian Pacific Kansas City, the fund is at an underweight on the rails exposure versus the index and therefore it ended up as a positive from a relative attribution standpoint. Freight uncertainty and some operational challenges for Canadian National Railway contributed to its negative performance but we consider the issues to be temporary and at current valuations are excited at the prospect to potentially add to our investment through our rebalancing process.

Transactions

During the quarter, we exited our investment in Visa and initiated a new position in Broadcom Inc. The change was primarily our view that there is more upside in Broadcom from a valuation perspective for similar levels of dividend growth as Visa and that Broadcom represents a scarcer opportunity relative to the Canadian landscape which has a dearth of opportunities to the AI theme.

As per our quarterly rebalancing process, we reduced our investments in Dollarama, Stella Jones and Thomson Reuters and increased our investments in Canadian National Railway, Colliers International, Zoetis, Open Text and InterRent Real Estate Investment Trust.

Source: Bristol Gate Capital Partners. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Firm Update

To all our clients:

We are happy to announce that Youssef Rofail joined Bristol Gate in June as Operations Analyst. In addition, Laura Hall will be taking on the new role of Relationship Manager. Youssef’s addition and Laura’s new role will strengthen our ability to continue to serve our clients to the best of our abilities.

Thank you for your ongoing support and trust. We are determined to do everything we can to provide you income growth and strong investment returns in the future.  

Sincerely, 

The Bristol Gate Team 

Important disclosures

There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.

US Equity Strategy returns in this report refer to the Bristol Gate US Equity Strategy Composite (the “Composite”). The Composite consists of equities of publicly traded, dividend paying US companies. The Composite is valued in US Dollars and for comparison purposes is measured against the S&P 500 Total Return Index. The composite’s Investment Advisor, Bristol Gate Capital Partners Inc., defines itself as a portfolio manager, exempt market dealer and investment fund manager (as per its registration in Ontario, its principal regulator in Canada) and is also a Registered Investment Adviser with the U.S. Securities and Exchange Commission (the “SEC”). The Investment Advisor’s objective is to select companies with positive dividend growth, and which collectively will generate over the long term a growing income and capital appreciation for investors.  The inception date of the Composite is May 15, 2009. The US Dollar is the currency used to measure performance, which is presented on a gross and net basis and includes the reinvestment of investment income. The composite’s gross return is gross of withholding tax prior to January 1, 2017 and is net of withholding tax thereafter.  Net returns are calculated by reducing the gross returns by the maximum management fee charged by Bristol Gate of 1%, applied monthly. Actual investment advisory fees incurred by clients may vary. There is the opportunity for the use of leverage up to 30% of the net asset value of the underlying investments using a margin account at the prime broker.  Thus far no material leverage has been utilized.  An investor’s actual returns may be reduced by management fees, performance fees, and other operating expenses that may be incurred because of the management of the composite.  A performance fee may also be charged on some accounts and funds managed by the firm. Bristol Gate claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please email us at info@bristolgate.com. 

The S&P 500® Total Return Index measures the performance of the broad US equity market, including dividend re-investment, in US dollars. This index is provided for information only and comparisons to the index has limitations. The benchmark is an appropriate standard against which the performance of the strategy can be measured over longer time periods as it represents the primary investment universe from which Bristol Gate selects securities. However, Bristol Gate’s portfolio construction process differs materially from that of the benchmark and the securities selected for inclusion in the strategy are not influenced by the composition of the benchmark. For example, the strategy is a concentrated portfolio of approximately equally weighted dividend-paying equity securities, rebalanced quarterly whereas the benchmark is a broad stock index (including both dividend and non-dividend paying equities) that is market capitalization weighted. As such, strategy performance deviations relative to the benchmark may be significant, particularly over shorter time periods. The strategy has concentrated investments in a limited number of companies; as a result, a change in one security’s value may have a more significant effect on the strategy’s value.

In addition to strategy’s benchmark described above, the following additional Index data may be presented for information purposes only and comparisons to these Indices has limitations:

The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight – or 0.2% of the index total at each quarterly rebalance. The index is used to highlight the impact of concentration in the market cap weighted index but is of limited in relevance as it not solely focus on dividend paying securities, whereas Bristol Gate’s US Equity strategy’s securities solely are focused on dividend paying securities.

S&P 500 ® Total Return Dividend Aristocrats Index measures the performance of a subset of S&P 500® Index companies that have increased their dividends every year for the last 25 consecutive years. This Index has limited relevancy to our approach as it focuses on historical dividend growth, whereas Bristol Gate’s US Equity strategy’s securities are selected based on future dividend growth.

SPDR® S&P 500® ETF Trust (SPY US) sourced from Bloomberg has been used as a proxy for the S&P 500® Total Return Index for the purpose of providing non-return-based portfolio statistics and sector weightings in this report.  SPY US is an ETF that seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index.

Canadian Equity Strategy returns in this report refer to the Bristol Gate Canadian Equity Strategy Composite (the “Composite”). The Composite consists primarily of equities of publicly traded, dividend paying Canadian companies.

The Composite is valued in Canadian Dollars and for comparison purposes is measured against the S&P/TSX. The composite’s Investment Advisor, Bristol Gate Capital Partners Inc., defines itself as a portfolio manager, exempt market dealer and investment fund manager (as per its registration in Ontario, its principal regulator in Canada) and is also a Registered Investment Adviser with the U.S. Securities and Exchange Commission (the “SEC”). The Investment Advisor’s objective is to select companies primarily from the S&P/TSX universe with positive dividend growth and which collectively will generate over the long term a growing income and capital appreciation for investors.  The inception date of the Composite is July 1, 2013. Returns are presented gross and net of fees and include the reinvestment of all income. The composite’s gross return is gross of withholding tax prior to January 1, 2017 and is net of withholding tax thereafter. Net returns are calculated by reducing the gross returns by the maximum management fee charged by Bristol Gate of 0.7%, applied monthly. Actual investment advisory fees incurred by clients may vary.  An investor’s actual returns may be reduced by management fees, performance fees, and other operating expenses that may be incurred because of the management of the composite.  A performance fee may be charged on some accounts and funds managed by the firm.  Bristol Gate claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please email us at info@bristolgate.com. 

The returns have been converted into Canadian Dollars using month‐end Bank of Canada Closing rates.

The S&P/TSX Total Return Index measures the performance of the broad Canadian equity market, including dividend re-investment, in Canadian dollars. This index has been provided for information only and comparisons to the index has limitations. The benchmark is an appropriate standard against which the performance of the strategy can be measured over longer time periods as it represents the primary investment universe from which Bristol Gate selects securities. However, Bristol Gate’s portfolio construction process differs materially from that of the benchmark and the securities selected for inclusion in the strategy are not influenced by the composition of the benchmark. For example, the strategy is a concentrated portfolio of approximately equally weighted dividend-paying equity securities, rebalanced quarterly whereas the benchmark is a broad stock index (including both dividend and non-dividend paying equities) that is market capitalization weighted. As such, strategy performance deviations relative to the benchmark may be significant, particularly over shorter time periods. The strategy has concentrated investments in a limited number of companies; as a result, a change in one security’s value may have a more significant effect on the strategy’s value.

iShares Core S&P®/TSX® Capped Composite Index ETF (XIC CN) sourced from Bloomberg has been used as a proxy for the S&P®/TSX® Total Return Index for the purpose of providing non-return-based portfolio statistics and sector weightings in this report. XIC CN is an ETF that seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses.

This Report is for information purposes and should not be construed under any circumstances as a public offering of securities in any jurisdiction in which an offer or solicitation is not authorized. Prospective investors in Bristol Gate’s pooled funds or ETF funds should rely solely on the fund’s offering documents, which outline the risk factors associated with a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax implications of any investment in a Bristol Gate fund.

This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.

A Note About Forward-Looking Statements

This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.

These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events.

Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.

Performance Summary

During the quarter, both the US Equity Strategy and Canadian Equity Strategy underperformed their respective benchmarks net of fees. Both the strategies also continued to outpace their respective benchmarks in terms of dividend growth. For a more detailed discussion on performance see each Strategy’s respective section below.

Portfolio Dividend Growth – Trailing and consensus forward 12 months.

Note: Last 12 months (“LTM”) Dividend Growth is the median of the actual trailing 12-month dividend growth of the individual stocks held by Strategies or Index constituents as reported by Bloomberg as at March 31, 2024. Forward 12 months (“FTM”) Dividend Growth is the median of the Bristol Gate Model’s forward 12-month prediction for the individual stocks held by the Strategies and the median of consensus estimates for the constituents of the Indices as of quarter end. Companies without a consensus dividend forecast were excluded.

Source: Bloomberg, FactSet, Bristol Gate Capital Partners.

“Multiples are not valuation”

When it comes to valuing businesses (or portfolios), we strongly agree with Michael Mauboussin’s statement that “Multiples are not valuation. They are a shorthand for the valuation process. Importantly, multiples obscure the value drivers that investors most care about.” We believe valuations are more nuanced – both at the portfolio and company level – than just dividing price by earnings.

The P/E ratio is possibly the most used measure to gauge the valuation of a stock. It represents the amount an investor is paying for each dollar of earnings. The higher the ratio, the more expensive a stock is relative to its earnings.

When evaluating investment options, we believe comparing P/E ratios in a vacuum can result in suboptimal outcomes. We suspect some of the relative performance challenges certain investors have faced over the past decade are due to focusing too much on the absolute ratio and not enough on the underlying nuances that drive differences in P/E ratios.

At the portfolio level, factors such as the composition versus the Index in terms of sector weights and the mix of cyclical versus defensive stocks can have an impact. At the company level, growth and the sustainability of returns on capital supported by the durability of competitive advantages can impact valuation.

It is commonly understood that the value of a business is the sum of its future discounted cash flows (DCF). Perhaps the most well-known and easiest to calculate DCF is the Gordon Growth Model (GGM), named after Myron Gordon who published a paper on it in 1956. Professor Gordon showed how the price of a business (P) is determined by the dividend in the upcoming year (D1), the future growth rate of that dividend (g) and the investor’s required rate of return (r):

Although the model has certain limitations, you can understand our affinity for it given its simplicity, eloquence, and our focus on dividend growth. Its principles underly our conceptual return framework.

Exhibit 1: Bristol Gate Conceptual Return Framework

Source: Bristol Gate Capital Partners

Assuming an investor has a 15% return requirement and applying the GGM to two companies, both paying a $1 dividend per share today, but Company A is expected to grow its dividend sustainably at 10% and Company B is expected to grow its dividend sustainably at 5%, we can see the effect dividend growth has on valuation:

The company with the faster growth, Company A, is approximately two times more valuable than Company B.

However, growth requires investment. The more you need to invest to drive growth, the less you have left to payout to investors. Therefore, it is not just the growth that matters but the amount of capital needed to sustain that growth. A business generating 15% returns for every dollar invested in it should be more valuable than a business generating 5% returns on the same dollar of investment, all else being equal. 

Extending the above analysis to show the effect returns on invested capital (ROIC) have on valuation, let’s again assume we have two companies. This time we will call them Company Y and Company Z. Today, both produce $2 in earnings and pay a dividend per share of $1, implying an initial payout ratio of 50%. For every dollar invested in the business, Company Y earns a 30% return whereas Company Z produces a 10%. Under these assumptions, Company Y can grow its dividend 15% annually while company Z is only able to grow its dividend at a 5% rate ((1-payout ratio = reinvestment rate)*ROIC). Higher ROICs support faster dividend growth. As we showed in the previous example of the Gordon Growth Model, higher dividend growth generates higher valuations.

Back to the matter of why it is inadvisable to simply look at valuation through the lens of P/E: You can see from the exhibit below, the concentrated nature of our portfolio and our investment process focusing on the fastest dividend growers for the coming year results in different sector breakdown compared to the Index. It is common for our portfolio to be underweight higher yielding sectors because they typically have lower dividend growth prospects. Those sectors also often happen to trade at below market multiples.

Exhibit 2. Bristol Gate US Equity Sector Weights and P/E Ratios vs. the S&P 500 Index

Source: Bristol Gate Capital Partners, Bloomberg. As at 03/31/24.

Dissecting the portfolio’s relative P/E by sector reveals that the variance from the index is largely driven by Financials where we have a large overweight allocation and our holdings trade at a P/E ratio almost two times the Index’s sector constituents.

Now, the question is, is that multiple difference justified? We believe the answer is yes. When compared to the broader Financials sector, we think our holdings have several attributes that support their premium valuation. Our Financial holdings consist of Marsh & McLellan, Mastercard, Moody’s, MSCI and Visa. These companies look quite different to the typical bank or insurance company that make up most of the Financials sector. Unlike the highly regulated banks and insurance industries, the businesses in our portfolio are ‘capital light,’ and they have recurring revenue models and high customer renewal rates. These business models are less influenced by volatile business cycles or interest rate cycles and typically produce more consistent earnings. Our Financial holdings have better profit margins due to their differentiated offerings. They are not selling vanilla financial products; they have unique assets or expertise that customers are willing to pay for.

Exhibit 3 below compares various measures of profitability of our Financials holdings to the sector. They are four to nine times more profitable depending on the measure considered, earning much more per dollar invested in the business than the sector overall. As we demonstrated earlier, higher returning businesses deserve premium valuations.

Exhibit 3: Bristol Gate US Equity Strategy Financials Sector Holdings Return Characteristics

Source: Bristol Gate Capital Partners, Bloomberg. As at 03/31/24

Not all P/E multiples are created equal. Treating them the same without considering the underlying drivers of value can be hazardous to your future wealth creation.

US Equity Strategy

Source: Bristol Gate Capital Partners. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Market Recap:

The S&P 500 rose 10.6% during the first quarter as the market continued to ride the wave of the Magnificent Seven stocks to new highs. Corporate earnings remain positive but muted as the Federal Reserve continued to hold interest rates steady and market expectations for a rate cut continue to get pushed out further in the future.

Portfolio Results:

The US Equity strategy underperformed the benchmark in the period.

Contributors:

An underweight to Consumer Discretionary, combined with positive stock selection, an overweight to Materials with strong stock selection, and no exposure to Consumer Staples contributed to relative returns in the period.

On an absolute basis, Applied Materials Inc (AMAT), Corteva Inc (CTVA), and Broadcom Inc (AVGO) were amongst our best performers in the period. 

AMAT continues to benefit from ongoing investments by semiconductor manufacturers. A surge of interest in generative AI is leading to higher demand at the leading edge and COVID induced global supply chain challenges are resulting in localized manufacturing investments at the lagging edge. According to McKinsey, by 2030, generative AI alone will significantly increase semiconductor wafer demand, which will in turn translate into more demand for AMAT’s semiconductor manufacturing equipment.  When combined with more complex chip designs requiring new materials, innovative technologies, more steps in the chip manufacturing process, an increase in attached services and share gains we believe AMAT can grow revenue in the high single digits in a conservative outlook and mid teens in a more optimistic scenario over that period.

AVGO also benefited from AI. At a recent investor meeting, the company disclosed a third major customer for its custom AI chips, building upon existing relationships with Google and Meta. Management expects AI to account for ~$10 billion of revenue in fiscal 2024, accounting for 35% of its semiconductor segment revenue, compared to ~15% in fiscal 2023. The company’s total semiconductor business has grown 13% annually, organically from $17 billion in fiscal 2019 to $28 billion in fiscal 2023. We expect AI to remain a substantial growth driver going forward as the company highlighted customer AI clusters have grown from 4,000 nodes in 2022 to 30,000 in 2024, with plans to go to one million+ nodes over time, driving demand for both AVGO’s custom AI and networking silicon.

CTVA had a significant rebound following better than expected commentary surrounding its crop protection business and extremely low expectations. While destocking amongst distributors is ongoing, underlying farmer demand remains stable. The company expects a normalization of the crop protection market into fiscal 2025. In the meantime, the company’s seed segment continues to meet our expectations, with potential future upside from recent European Union policy change in favour of gene edited seeds. Gene edited crops had been bucketed along with genetically modified organisms and therefore effectively band throughout most of the EU, however the success of messenger RNA vaccines for COVID-19, the rising threat of climate change to food production, and the war in Ukraine have all worked to shift opinions on new breeding technologies.

Detractors:

Stock selection in the Industrials, Financials, and Health Care sectors detracted from returns in the period. Additionally, the allocation to Health Care also negatively impacted relative performance. Despite being overweight in these sectors, the selections made within Industrials, Financials, and Health Care were not beneficial to the portfolio’s overall returns.

On an absolute basis, Zoetis Inc (ZTS), American Tower Corp (AMT), and UnitedHealth Group Inc (UNH) were amongst the weakest performers in the period.

ZTS fell due to competitive concerns on key franchises like Simparica Trio in parasiticides, and Apoquel and Cytopoint in dermatology as new entrants entered or are expected to enter the markets. We believe the company has several strategies at its disposal to not only defend share but continue growing it, including  chewables in Apoquel or longer lasting versions of Cytopoint. In the parasiticide market, less effective treatments like collars retain a large share of the market which we expect to provide continued conversion opportunities for Simparica Trio. Competitive entrants should help grow the segment through increased consumer awareness. In addition to the competition issues, ZTS was pressured by investor concerns regarding the safety of a new osteoarthritis (OA) drug launched in the US called Librela. We believe the safety concerns are overblown as the drug has been in markets outside the US for almost three years now with 11 million doses globally since the launch. Management has reported no unusual trends or signals with its US experience thus far. 

AMT, along with the real estate sector overall, was negatively impacted by higher rates. The higher cost of funding and a sizeable amount of debt led to dividend growth predictions below our hurdle rate, which in turn led to the sale of the stock during the quarter. 

Often healthcare stocks face challenges during election years as the cost of medical care frequently becomes a political issue, however, UNH also had several discrete challenges that pressured it. In February, the company disclosed a massive data breach at its Change Healthcare unit impacting its electronic prescribing, payment and medical claims platforms. The company has been aggressively working to restore its systems and launched a Temporary Funding Assistance Program to ensure healthcare providers impacted by the hack could bridge their cash flow needs until systems were restored. While work continues, we believe this will prove to be a temporary impediment. In addition to the hack, media reports suggested UNH was the subject of a Department of Justice (DoJ) investigation over antitrust concerns. This is another area where we believe the risk is overblown as the DoJ has failed in the past to alter UNH’s strategy. Although UNH runs the largest private health insurer in the US, has a sizable physician network, one of the largest pharmacy benefits managers and large billing and data businesses, we believe its integrated approach is instrumental in improving health outcomes and lower costs, benefiting both consumers and payors. Lastly, rising medical cost trends fueled by higher care utilization will generally pressure health insurers’ profitability. We believe UNH has appropriately priced its policies to account for current trends and its broad product offering will help it mitigate any margin pressure in its health insurance business. One area we are paying close attention to is how competitors respond to the current backdrop. In the past, efforts to gain market share through aggressive pricing during a rising cost environment have not been good for industry valuations. We believe the industry has learned from past mistakes and recent competitor commentary suggest so, however, time will tell.

Transactions:

Two new positions were initiated during the quarter: McKesson Corp. (MCK) and Marsh & McLennan Companies Inc (MMC), both of whom are high quality businesses from whom we expect high dividend growth going forward. 

MCK is one of the three largest pharmaceutical distributors in the US, servicing both drug manufacturers and health care providers. The company operates in an oligopolistic industry that has high barriers to entry. The three largest distributors now collectively control over 90% of drug sales that flow through the U.S. distribution channel. MCK has historically delivered excellent returns on capital due to good cash conversion and inventory turns along with minimal capital spending requirements. There are secular tailwinds, including an aging population, the expected growth in the use of biosimilars, their specialty segment and of GLP-1 drugs, that we believe will drive the company’s ability to grow earnings, free cash flows and subsequently dividends. 

MMC is the world’s leading professional services firm in risk, strategy and people. Like MCK, MMC operates in an oligopolistic industry; large insurance brokers have considerable advantages versus smaller brokers in serving global multinationals and competition is limited by the regulatory and specialized nature of insurance. The company also has the tailwind of a “hard” insurance market driving policy prices higher (which is good for broker commissions) without the commensurate underwriting risk, a resilient business model (insurance is a “must have”, not a “nice to have”), and a long-term track record of profitable revenue growth. 

To fund the acquisitions, we exited our stakes in American Tower Corp. and Starbucks Corp, both primarily due to lower expected dividend growth. 

In addition, as per our quarterly rebalancing process, we trimmed our holdings in Applied Materials and Broadcom, and increased our position in UnitedHealth Group.

Canadian Equity Strategy

Source: Bristol Gate Capital Partners. There is a risk of loss inherent in any investment; past performance is not indicative of future results. Please see important disclosures at end of document.

Market Recap:

The S&P/TSX Composite rose 6.6% during the period, on the back of a rally in Energy stocks as well as the Health Care and Industrials sectors. The Bank of Canada continued to hold rates at current levels given continued sluggish growth in the economy. Increased price competition amongst the telecoms was reflected in valuations for was the worst performing sector during the quarter.

Portfolio Results:

The Canadian Equity strategy underperformed the benchmark in the period.

Contributors:

An underweight to Financials, combined with stock selection, an overweight to Industrials despite negative stock selection, and no exposure to Utilities contributed to returns in the period.

On an absolute basis, Waste Connections Inc, CCL Industries Inc, and Toromont Industries Ltd were amongst our best performers in the period.

 Waste Connections delivered a strong quarter finishing strong a volatile fiscal year for the company, coupled with a constructive guidance for the year ahead, as inputs inflation subsides and pricing for its services remains strong. A leader in the waste collection space, it continues to execute its strategy of organic growth, operational efficiencies and tuck-in acquisitions.

Similarly, CCL’s share price responded positively after its earnings beat expectations on stronger organic growth and increased operating margins. Management provided positive guidance for the year ahead as previous investments have added capacity in growing segments of its business. It also increased its quarterly dividend by 9.4%.

Toromont reported a strong quarter to cap off a solid year for the company. While normalization continues in the equipment market, the company continues to grow through multiple avenues including equipment sales, rentals and support. Additionally, management has the balance sheet capacity to pursue M&A opportunities. In the meantime, it raised its quarterly dividend by 11.6%.

Detractors:

Stock selection in the Information Technology and Consumer Staples sectors detracted from returns in the period. Additionally, being overweight in Consumer Staples and underweight in Information Technology also contributed negatively to the performance.

On an absolute basis, Zoetis Inc (ZTS), Enghouse Systems Ltd (ENGH), and Jamieson Wellness Inc (JWEL) were amongst the weakest performers in the period.

ZTS fell due to competitive concerns on key franchises like Simparica Trio in parasiticides, and Apoquel and Cytopoint in dermatology as new entrants entered or are expected to enter the markets. We believe the company has several strategies at its disposal to not only defend share but continue growing it, including  chewables in Apoquel or longer lasting versions of Cytopoint. In the parasiticide market, less effective treatments like collars retain a large share of the market which we expect to provide continued conversion opportunities for Simparica Trio. Competitive entrants should help grow the segment through increased consumer awareness. In addition to the competition issues, ZTS was pressured by investor concerns regarding the safety of a new osteoarthritis (OA) drug launched in the US called Librela. We believe the safety concerns are overblown as the drug has been in markets outside the US for almost three years now with 11 million doses globally since the launch. Management has reported no unusual trends or signals with its US experience thus far. 

Enghouse posted a weaker than expected quarter, as its clients continued to transition to its cloud offerings, which is associated by additional capital expenditure and deferred sales. Financially the company is stronger than ever, with a record cash balance and no debt, ready to pursue its M&A strategy that has created significant value for its shareholders over the years. It also raised its dividend by 18.2%.

Jamieson Wellness missed expectations and management offered weaker than expected guidance, affecting negatively its stock price. The miss was primarily driven by its domestic market and closely tied to one specific customer. Internationally Jamieson continues to execute its strategy as both its segments in US and China are performing well.

Transactions:

During the quarter we exited our investment in Canadian Pacific Kansas City Ltd (CP). We continue to believe that CP remains a high-quality business, but a lack of dividend growth means we had to move on to remain disciplined with our process. 

Going forward, the Canadian Equity strategy will hold 22 names to align with our US Equity strategy. 

As per our quarterly rebalancing process, we added to our investments in Telus, Premium Brands Holdings, Open Text, FirstService and Intact Financial with the proceeds from the sale of CP.

Firm Update

To all our clients, thank you for your ongoing support and trust. We are determined to do everything we can to provide you income growth and strong investment returns in the future.  

Sincerely, 

The Bristol Gate Team 

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Important disclosures

There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.

US Equity Strategy returns in this report refer to the Bristol Gate US Equity Strategy Composite (the “Composite”). The Composite consists of equities of publicly traded, dividend paying US companies. The Composite is valued in US Dollars and for comparison purposes is measured against the S&P 500 Total Return Index. The composite’s Investment Advisor, Bristol Gate Capital Partners Inc., defines itself as a portfolio manager, exempt market dealer and investment fund manager (as per its registration in Ontario, its principal regulator in Canada) and is also a Registered Investment Adviser with the U.S. Securities and Exchange Commission (the “SEC”). The Investment Advisor’s objective is to select companies with positive dividend growth, and which collectively will generate over the long term a growing income and capital appreciation for investors.  The inception date of the Composite is May 15, 2009. The US Dollar is the currency used to measure performance, which is presented on a gross and net basis and includes the reinvestment of investment income. The composite’s gross return is gross of withholding tax prior to January 1, 2017 and is net of withholding tax thereafter.  Net returns are calculated by reducing the gross returns by the maximum management fee charged by Bristol Gate of 1%, applied monthly. Actual investment advisory fees incurred by clients may vary. There is the opportunity for the use of leverage up to 30% of the net asset value of the underlying investments using a margin account at the prime broker.  Thus far no material leverage has been utilized.  An investor’s actual returns may be reduced by management fees, performance fees, and other operating expenses that may be incurred because of the management of the composite.  A performance fee may also be charged on some accounts and funds managed by the firm. Bristol Gate claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please email us at info@bristolgate.com. 

The S&P 500® Total Return Index measures the performance of the broad US equity market, including dividend re-investment, in US dollars. This index is provided for information only and comparisons to the index has limitations. The benchmark is an appropriate standard against which the performance of the strategy can be measured over longer time periods as it represents the primary investment universe from which Bristol Gate selects securities. However, Bristol Gate’s portfolio construction process differs materially from that of the benchmark and the securities selected for inclusion in the strategy are not influenced by the composition of the benchmark. For example, the strategy is a concentrated portfolio of approximately equally weighted dividend-paying equity securities, rebalanced quarterly whereas the benchmark is a broad stock index (including both dividend and non-dividend paying equities) that is market capitalization weighted. As such, strategy performance deviations relative to the benchmark may be significant, particularly over shorter time periods. The strategy has concentrated investments in a limited number of companies; as a result, a change in one security’s value may have a more significant effect on the strategy’s value.

S&P 500 ® Total Return Dividend Aristocrats Index measures the performance of a subset of S&P 500® Index companies that have increased their dividends every year for the last 25 consecutive years. This Index has limited relevancy to our approach as it focuses on historical dividend growth, whereas Bristol Gate’s US Equity strategy’s securities are selected based on future dividend growth.

S&P 500 ® High Dividend Index is designed to measure the performance of 80 high yield companies within the S&P 500 and is equally weighted to best represent the performance of this group, regardless of constituent size. This Index has

limited relevancy to our approach as it focuses on dividend yield, whereas Bristol Gate’s US Equity strategy’s securities are selected based on future dividend growth.

SPDR® S&P 500® ETF Trust (SPY US) sourced from Bloomberg has been used as a proxy for the S&P 500® Total Return Index for the purpose of providing non-return-based portfolio statistics and sector weightings in this report.  SPY US is an ETF that seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500® Index.

Canadian Equity Strategy returns in this report refer to the Bristol Gate Canadian Equity Strategy Composite (the “Composite”). The Composite consists primarily of equities of publicly traded, dividend paying Canadian companies.

The Composite is valued in Canadian Dollars and for comparison purposes is measured against the S&P/TSX. The composite’s Investment Advisor, Bristol Gate Capital Partners Inc., defines itself as a portfolio manager, exempt market dealer and investment fund manager (as per its registration in Ontario, its principal regulator in Canada) and is also a Registered Investment Adviser with the U.S. Securities and Exchange Commission (the “SEC”). The Investment Advisor’s objective is to select companies primarily from the S&P/TSX universe with positive dividend growth and which collectively will generate over the long term a growing income and capital appreciation for investors.  The inception date of the Composite is July 1, 2013. Returns are presented gross and net of fees and include the reinvestment of all income. The composite’s gross return is gross of withholding tax prior to January 1, 2017 and is net of withholding tax thereafter. Net returns are calculated by reducing the gross returns by the maximum management fee charged by Bristol Gate of 0.7%, applied monthly. Actual investment advisory fees incurred by clients may vary.  An investor’s actual returns may be reduced by management fees, performance fees, and other operating expenses that may be incurred because of the management of the composite.  A performance fee may be charged on some accounts and funds managed by the firm.  Bristol Gate claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein. To obtain a GIPS Composite Report, please email us at info@bristolgate.com. 

The returns have been converted into Canadian Dollars using month‐end Bank of Canada Closing rates.

The S&P/TSX Total Return Index measures the performance of the broad Canadian equity market, including dividend re-investment, in Canadian dollars. This index has been provided for information only and comparisons to the index has limitations. The benchmark is an appropriate standard against which the performance of the strategy can be measured over longer time periods as it represents the primary investment universe from which Bristol Gate selects securities. However, Bristol Gate’s portfolio construction process differs materially from that of the benchmark and the securities selected for inclusion in the strategy are not influenced by the composition of the benchmark. For example, the strategy is a concentrated portfolio of approximately equally weighted dividend-paying equity securities, rebalanced quarterly whereas the benchmark is a broad stock index (including both dividend and non-dividend paying equities) that is market capitalization weighted. As such, strategy performance deviations relative to the benchmark may be significant, particularly over shorter time periods. The strategy has concentrated investments in a limited number of companies; as a result, a change in one security’s value may have a more significant effect on the strategy’s value.

iShares Core S&P®/TSX® Capped Composite Index ETF (XIC CN) sourced from Bloomberg has been used as a proxy for the S&P®/TSX® Total Return Index for the purpose of providing non-return-based portfolio statistics and sector weightings in this report. XIC CN is an ETF that seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses.

This Report is for information purposes and should not be construed under any circumstances as a public offering of securities in any jurisdiction in which an offer or solicitation is not authorized. Prospective investors in Bristol Gate’s pooled funds or ETF funds should rely solely on the fund’s offering documents, which outline the risk factors associated

with a decision to invest. No representations or warranties of any kind are intended or should be inferred with respect to the economic return or the tax implications of any investment in a Bristol Gate fund.

This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.

A Note About Forward-Looking Statements

This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.

These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events.

Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.