Middlefield Canadian Income positioned to benefit from potential Canadian tailwinds – In yesterday’s news coverage, we looked at the looming sale of one of Middlefield Canadian Income’s (MCT) real estate holdings, to Blackstone for the equivalent of $4.7bn (click here to read the story). MCT has this morning reported interim results to 30 June 2019, including:
- A NAV total return of 21% and a share price total return of 17.8%, which were in line with the MCT’s benchmark (S&P/TSX composite high dividend index) and the TSX (S&P/TSX composite index) of 20.8% of 21.4%;
- Since inception in 2006, MCT says its NAV has generated a cumulative return of 143.0%, outpacing the cumulative returns of the both the benchmark and TSX of 110.5% and 100%.
Potential for Canadian equities to benefit from tailwinds
Over the interim period. MCT increased its exposure to the US from 18.1% to 26.4% of the portfolio (the fund’s mandate allows it to also invest in the US). The fund says that economic growth in the US is expected to outpace other developed nations, making U.S. equities particularly attractive, especially in areas underrepresented in the Canadian market.
Notwithstanding this, MCT adds that Canadian equities are positioned to benefit from a number of fundamental tailwinds including population growth, record-low unemployment, the resolution of the USMCA trade agreement (formerly known as NAFTA) and a stable interest rate environment.
Defensive tilts
Nicholas Villiers, chairman of MCT, discussed had this to say on allocation decisions by the manager and the fund’s outlook: “In light of slowing global economic activity and the accommodative central bankers’ response through lower interest rates, the fund tilted its asset allocation during the first half of 2019 toward a more defensive posture by increasing the weighting of more interest rate sensitive sectors including real estate, pipelines and utilities. The fund’s largest sector weighting as at 30 June 2019 was real estate, accounting for 21.4% of the portfolio, a 10.5% overweight versus the benchmark. The current supply of commercial real estate has lagged demand in major Canadian cities resulting in higher valuations and robust rent growth.
The fund’s objective is to deliver results to shareholders by investing in companies which pay stable and growing dividends over time, and based on the expectation of interest rates remaining lower for longer, we believe dividend-paying issuers remain very attractive investments. The portfolio is uniquely positioned to provide investors with access to sectors and geographies that are typically under-represented in UK investment portfolios.”
MCT: Middlefield Canadian Income positioned to benefit from potential Canadian tailwinds
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