Middlefield Canadian Income PCC (MCT) has announced its intention to offer shareholders the option to roll over their investment into a newly launched, actively managed UCITS ETF listed on the London Stock Exchange. The proposed transaction would see the voluntary wind-up of the company and its GBP share class fund, with shareholders able to opt for shares in the new ETF, a cash exit close to NAV, or a combination of both.
The new ETF, to be managed by Middlefield and supported operationally by HANetf, will maintain the existing investment objective: delivering high income and long-term capital growth through exposure to high-quality, large-cap Canadian equities with strong dividend profiles. The ETF is expected to pay quarterly distributions, feature a TER below 1%, and benefit from improved trading liquidity and a share price closer to NAV.
The proposal follows a requisition by activist investor Saba Capital earlier this year, pushing for a liquidity-enhancing restructuring. After consultations with major shareholders, including Saba, and consideration of closed-end alternatives, the board determined that an ETF structure would best address persistent liquidity constraints and the discount to NAV.
The ETF is expected to be formally proposed in a shareholder circular by August 2025, subject to regulatory and tax approvals. Set-up costs will be covered by Middlefield. The board emphasised that shareholders who wish to exit will be able to do so at close to NAV.
Chair Michael Phair stated: “While we remain confident in the Company’s strategy, we recognise the ongoing limitations imposed by liquidity and discount issues. This proposed structure offers a practical and flexible solution for all shareholders.”
[QD comment MR: If approved, Middlefield Canadian Income’s proposed rollover into an actively managed UCITS ETF would mark a first for the UK-listed investment company sector. While we’ve seen traditional rollovers into open-ended funds or passive ETFs before, a move into an actively managed ETF structure is uncharted territory.
This approach could potentially offer shareholders continued exposure to the current strategy (although a realigned portfolio that is suitable for an ETF wouldn’t be able to hold the less liquid and potentially more profitable holdings that a closed end fund can – but this is not a major issue for MCT as it holds large cap stocks), possibly improved liquidity without the risk of a discount or premium, and may be a lower ongoing charge. However, other benefits such as having an independent board to hold the manager to account, gearing the portfolio (at least through borrowings) and having the flexibility to maintain a revenue reserve (although not an issue for MCT) to smooth income will be lost. Whether this sets a precedent for other income-focused closed-end funds grappling with persistent discounts remains to be seen, but it’s certainly one to watch.]
