Middlefield Canadian Income (MCT)

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.