MCT December 2023 Market Commentary

  • Canada
  • MCT December 2023 Market Commentary
M-Asset

Equity markets snapped back in November, erasing losses from the previous three months. In British Pounds, the TSX Composite generated a total return of 5.7%. The rise in equities was fueled by a combination of falling bond yields, subsiding inflation and lower commodity prices.

Consumer prices in Canada increased by 3.1% in October, down from 3.8% in September. In response to the downward trend in inflation, the Bank of Canada opted to keep interest rates unchanged for the third consecutive meeting on 6 December. While the decision was anticipated, policymakers have adopted more neutral language with regards to monetary policy, suggesting increased confidence that current rates are sufficiently restrictive to bring inflation back to the 2% target. Looking ahead to 2024, we expect the Bank of Canada to begin cutting rates in the first half of the year if the rate of inflation continues its current path.

The Fund’s core sector exposures, which tend to be more sensitive to movements in interest rates, are well-positioned against the current backdrop. In November, Canada 10-year bond yields declined 51 basis points, settling at 3.55%. The sharp decline in yields renders GICs and other fixed income investments less attractive on a relative basis – a headwind that dividend strategies have been facing for nearly two years. Canadian real estate, utilities and pipelines all delivered high-single-digit returns in November, yet they have still generated negative returns on a year-to-date basis. Despite the magnitude of the recent rally, we believe it represents the early stages of a prolonged recovery in Canadian dividend-paying stocks that should continue in 2024.

The Canadian financials sector generated a total return of 10% in November. Canada’s Big 6 Banks reported fiscal Q4 earnings in late November which helped boost sentiment in the sector. CIBC was a standout performer, returning 14.7% in November on the back of solid year-end results which were highlighted by tight expense control, better-than-expected capital reserve ratios and improved visibility on the credit performance of its commercial real estate portfolio. RBC, which returned 10.7% in November, delivered record Q4 and year-end results for revenue generation and reiterated its timeline for acquiring HSBC Canada. Five of the six big banks also bumped their quarterly dividends, with TD leading the pack with a 6.25% increase. Scotiabank was the only exception as the company has historically announced dividend increases with its Q2 or Q3 results.

In an effort to diversify its financials exposure, the Fund has added to its position in Manulife (MFC) recently. MFC is a premier Canadian Lifeco with operations in Canada, the U.S. and Asia. In addition to its core insurance offerings, MFC is also a prominent player in wealth and asset management. MFC stands out among its peers with its impressive capital strength, excess capital ratios and a management team that is dedicated to disciplined expense control. MFC’s Q3 earnings per share came in well above consensus estimates, driven by strength in its Asian and Canadian divisions. The stock returned 11.7% this month and finished the month as one of the Fund’s top 10 holdings.

 

 

Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. You will usually pay brokerage fees to your dealer if you purchase or sell units/shares of investment funds on the Toronto Stock Exchange or other alternative Canadian trading system (an “Exchange”). If the units/shares are purchased or sold on an Exchange, investors may pay more than the current net asset value when buying and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units or shares of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Mutual funds and investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Certain statements in this disclosure are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “should”, “could”, “expect”, “anticipate”, “intend”, “plan”, “believe”, or “estimate”, or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Middlefield Funds and the portfolio manager believe to be reasonable assumptions, neither Middlefield Funds nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.

  • Canada
  • MCT December 2023 Market Commentary
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