Fund Profile

Middlefield Canadian Income 22 October 2024

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Middlefield Canadian Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
MCT offers a high dividend yield from Canadian equities…
Overview

Middlefield Canadian Income Trust (MCT) provides investors with exposure to Canadian equities, with the aim of delivering a high income. Like the UK, Canada has a strong dividend culture, distinguishing it from its southern neighbour. This is reflected in MCT’s yield of c. 4.6%, the highest yield in the AIC North America sector. MCT is primarily exposed to three sectors: real estate, energy and financials, which have been long-term convictions of the manager.

Canada began cutting interest rates in June, being the first G7 country to do so. This, along with later US interest rate cuts, has given a boost to Canadian REITs, which have delivered strong returns over the past three months. REITs make up more than 20% of MCT, the largest overweight versus the Canadian market, and this means MCT has performed well in recent months (see Performance).

With interest rates projected to decline further, manager Dean Orrico is confident that Canadian REITs still have significant upside potential. Moreover, several REITs in the portfolio still trade at a discount to NAV, leaving room for further price appreciation if valuations re-rate.

As a result, Dean’s confidence about the portfolio’s outlook is further expressed through the current gearing level of 18.5%. Historically, gearing has dropped below 10% when the managing team felt cautious about the market. MCT trades on a c. 11% Discount at the time of writing.

Analyst's View

We think the recent rate cuts in Canada and the USA could bolster MCT’s performance, particularly given its large overweight in the real estate sector, which is sensitive to interest rates. Historically, the trust has outperformed during recovery phases and recent performance has been encouraging.

But while rate cuts could provide a tailwind for MCT, we would argue that it offers more than just a play on interest rates, providing exposure to areas of structural growth such as Canadian real estate and global demand for LNG.

There is also a ‘double discount’ element present in the portfolio, adding potential for outperformance. In a recent meeting the manager, Dean Orrico, said that many REITs held in the portfolio are trading at wide discounts, while MCT itself is currently trading at a c. 11% discount. He also believes that Canadian banks are trading below their long-term average.

We note that the board recently bought back shares, which is a rare move for MCT, while the manager also purchased shares to demonstrate confidence in the value of MCT’s holdings. We believe these initiatives reflects a high level of conviction and commitment to the strategy.

Overall, we think that MCT could be an attractive proposition for dividend seekers looking to diversify their sources of income through exposure to the equity market of a G7 economy with strong transparency and sound governance. MCT currently offers the highest dividend yield in the AIC North America sector, at c. 4.6%.

Bull

  • Rate cuts could be supportive of MCT’s REITs overweight
  • Highest dividend yield in the AIC North America sector
  • Wide discount adds potential for outperformance

Bear

  • High sector concentration exposes to sector-specific risks
  • Exposure to fossil fuels might not suit all investors
  • Single-country funds expose investors to currency risk and political risk
Continue to Portfolio

Fund History

22 Oct 2024 Fund Analysis
MCT offers a high dividend yield from Canadian equities…
21 Oct 2024 Monthly roundup: news on CHRY and ATST, highlights of our latest webinar series and the most popular investments in September
Jo and Ryan discuss the latest news, reviews and interviews in the investment trust world...
13 Oct 2024 Global equities in a year of change
Watch and download the presentations from this week's event...
02 Oct 2024 Hot property
Are the stars aligning for a revival in the fortunes of the REIT sector?
10 Oct 2024 Middlefield Canadian Income
Dean Orrico
Rewatch this webinar as part of our October online series 'Global equities in a year of change' hosted by the team at Kepler Trust Intelligence...
Watch Recording
31 Aug 2024 Don’t look back in anger
US equities are worth rolling with, but the market is broadening…
03 Jul 2024 A really great stockmarket, the best, some tell me the best they’ve ever seen
US equities should be the bedrock of any diversified portfolio…
18 Jun 2024 Talking Trusts: Interview with Dean Orrico, manager of Middlefield Canadian Income
We talk about the opportunity for investors in Canada with MCT...
19 Apr 2024 Canadian dispersion
A normalisation of returns across North American equities may prove supportive of MCT…
03 Apr 2024 Fund Analysis
MCT: stable income from an overlooked equity market…
23 Jan 2024 Canada’s time to shine
MCT’s strong dividend growth and prospective rate cuts may result in the trust’s discount tightening in the year ahead…
13 Dec 2023 On a roll
Higher energy prices, strong balance sheets, and peak rates all look supportive of MCT’s energy holdings…
20 Sep 2023 Results analysis: Middlefield Canadian Income
MCT could benefit from an end to the rate hiking cycle…
06 Sep 2023 You should be dancing…
North America should be a core part of any portfolio…
22 Aug 2023 Fund Analysis
MCT: stable income from an overlooked equity market…
17 Aug 2023 Canada: lower valuations and attractive growth - Podcast: Trust Issues #21
We speak to MCT Manager Dean Orrico about the prospects for the equity income trust...
24 May 2023 Five alternatives for income investors
Watch the presentations from our event focused on trusts delivering income via a diverse range of strategies…
18 May 2023 Middlefield Canadian Income
Dean Orrico
Rewatch this webinar from our online series in May 'Alternatives for income investors' hosted by the team at Kepler Trust Intelligence 15-19 May…
Watch Recording
17 Apr 2023 Results analysis: Middlefield Canadian Income
MCT saw positive share price returns in 2022 despite a tough macro environment…
30 Mar 2023 A new frontier for income investors
The managers of Middlefield Canadian Income think valuations and a new immigration policy put this little known destination for UK investors in an attractive position…
16 Mar 2023 Diversity matters
We examine the effect of blending multiple funds within your regional allocation and find that – while the culture wars may rumble on elsewhere – the benefits of diversity for investors are unarguable…
30 Dec 2022 They’re coming to…Canada?
Large numbers of immigrants may continue to make Canadian real estate an attractive investment…
23 Dec 2022 Catch-22
The housing market is in a strange position as we head into the new year…
30 Nov 2022 Cry havoc!
Lessons from a year in which an already troubled world was savaged by the dogs of war...
10 Nov 2022 Fund Analysis
A long track record of steady dividends and unique exposure to Canadian equity income stocks makes MCT an ideal income portfolio diversifier...
10 Nov 2022 Light at the end of the tunnel
Our speakers struck an optimistic note this week as we considered the prospects for investors at the end of a difficult year…
10 Nov 2022 Slides and Audio: Middlefield Canadian Income
Download the presentation and listen to the audio from our webinar from 9 November...
12 Oct 2022 A bright spot in North America
Canada’s economy is shielded against many of the problems the world is facing today…
21 Sep 2022 Results analysis: Middlefield Canadian Income
MCT's wide discount may prove attractive to investors...
07 Sep 2022 American muscle
Beating US indices is a monumental task. We examine the closed- and open-ended North American sectors to see how they have fared…
27 Jul 2022 Has the comeback begun?
Our analysts debate whether the market has fully priced in the current inflation and looming recession…
20 Jul 2022 Ingredients for success
We identify several less conventional trusts that offer strong sources of diversification to major indices…
24 Jun 2022 Delivering returns in a financial storm
We look at three trusts that have managed to deliver returns for shareholders so far in 2022…
27 May 2022 Canadian stocks have a lot of tailwinds in their favour
Trusts like MCT may benefit from rising prices and an economic bounce back…
12 May 2022 Fund Analysis
MCT allows investors to access a high-yielding market prospering from high commodity prices at an attractive discount…
29 Apr 2022 O Canada
The North American market may act as a safe haven for investors in the near future…
27 Apr 2022 Finding value in a haystack
Non-income value strategies are becoming increasingly scarce, but the holdouts represent attractive near-term opportunities…
View all

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