Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

There is a lot to like about Middlefield Canadian in the current climate
Thursday 17 Mar 2022 Author: James Crux

Anyone seeking a compelling investment trust that’s cheap and pays a decent income should consider Middlefield Canadian Income (MCT).

It offers an attractive 4.1% dividend yield but also trades at a 15.2% discount to net asset value versus a 12-month average discount of 13.8%, according to Winterflood.The trust is the top performer in the Association of Investment Companies’ North America sector on a one-year performance basis with a 37.4% share price total return.

Shares believes the near and long-term set-up for Middlefield Canadian Income is positive, with the diversified portfolio and quarterly dividend payer offering exposure to best-in-class financial institutions and healthcare names, among other sectors.

‘Healthcare companies provide needs-based products, and many companies typically carry high levels of inventory, making them an attractively priced defensive sector,’ says fund manager Dean Orrico.

Investors in Middlefield Canadian Income also get exposure to the energy sector and the emerging renewable power industry in Canada.

Russia’s invasion of Ukraine and its disruption of the flow of oil and gas means energy prices could remain elevated for some time, boosting the earnings of attractively valued Canadian energy companies in the trust’s portfolio.

Extra profits will give these energy companies the opportunity to reinvest money back into their business to support future growth, as well as paying down debt, buying back shares and increasing shareholder dividends.

Investors in Middlefield Canadian also get exposure to the real estate market. Orrico comments: ‘Real estate owners have the ability to pass on rising costs via higher rents and some leases also include inflation-linked escalators.’

While investors are now expecting a more moderate increase in interest rates due to the fallout from Putin’s attack on global growth, soaring inflation means rates are still going to go up.

This will create a headwind for indebted companies with limited earnings visibility, which the trust eschews, and a tailwind for the stable, cash flow generative companies run by competent management teams that the fund favours.


Middlefield Canadian Income offers something different to its North America investment trust peers thanks to its Canadian equity bias.

Canada is a robust, reliable international market too often overshadowed by the US. And while the devastating Ukraine crisis means the growth trajectory of the global economy will remain uncertain, it is worth noting that Canada benefits from higher energy independence and produces some of the commodities that are being impacted by sanctions, wheat and potash among them.

Furthermore, it is also a secure net exporter of oil and natural gas, and both the consumer and the Canadian banking system are on solid footing.

Canadian equities outperformed most developed markets in 2021 and the country’s economic recovery should continue well into 2022 as consumer demand and supply chain challenges recover from the pandemic.


While highly sensitive to the plight of the people of Ukraine, Orrico points out that ‘as far as the Canadian investment landscape goes, we think we are fairly well positioned’.

He adds: ‘Our trade with Russia/Ukraine is very minimal, we are a country that is abundant in resources and when you think about the impact on oil and gas prices, that is clearly benefiting Canadian businesses that are leveraged to the energy market.’

As of the end of January 2022, top holdings in trust included AltaGas, an energy infrastructure company with a focus on clean energy; and Capital Power, a power producer across North America on a path to net carbon neutrality by 2050.

Middlefield Canadian Income is also invested in various Canadian banks including TD Bank, Bank of Montreal and CIBC, as well as a trio of real estate investment trusts. For example, its portfolio includes a position in RioCan REIT whose recent fourth quarter results revealed a rebound in retail occupancy and a 6.25%  dividend hike.

Shares also notes the investment trust recently initiated a position in profitable Canadian energy company Whitecap Resources, which is expected to generate nearly $1 billion in free cash flow, after distributions and buybacks, in 2022.


Technology represents only a small part of the trust and one relevant company in the portfolio is customer relationship management software group Salesforce. While it hasn’t had a good year so far on the market, down 24% since 1 January, Middlefield Canadian takes a longer-term view of its opportunities.

‘We expect that customer relationship management will benefit from global normalisation as businesses bring employees back to the office and shift their spending from expense-focused digital tools enabling remote work to revenue-generating ones such as CRM software,’ comments Orrico.

While Middlefield Canadian’s 1.3% ongoing charge is on the more expensive side for equity investment trusts, we note it has outperformed the MSCI All-Countries world index, a popular benchmark for global shares, on a one, three and five-year basis. There is a lot to like about its portfolio in the current market environment so add this trust to your portfolio now.

‹ Previous2022-03-17Next ›