MCT February 2024 Market Commentary

  • Canada
  • MCT February 2024 Market Commentary

Equity markets started the year the same way they finished 2023. The S&P 500 returned 1.7% in January and reached all-time highs during the month. The TSX Composite Index had a total return of 0.6% in the local currency but was offset by a depreciation in the Canadian dollar versus the British Pound by c.1%. The Fund’s share price rose 1% in January, causing a reduction in its discount to net asset value.

Recent economic data in the U.S. confirms a resilient labour market and robust consumer spending, highlighted by real personal spending expanding by 0.5% in December. The U.S. represents over 75% of Canada’s exports, making it a very important end-market for many Canadian companies. Solid economic data combined with falling inflation provides a stable demand backdrop for the U.S. consumer. The Goldilocks scenario that has taken shape in recent months should support earnings growth for Canadian cyclicals and support further price appreciation in the coming months. In light of the market’s uncertainty surrounding the timing of interest rate cuts, MCT is positioned in attractively valued, larger capitalization dividend-paying companies which we believe will see significant funds flow when rate cuts are announced as early as Q2 2024.

Domestically, the outlook for the Canadian economy is also positive. The economy grew by 0.2% in November and fourth quarter 2023 is expected to report an increase of 1.2% on an annualized basis. Immigration continues to fuel demand and support economic activity. Canada accepted 455,000 new permanent residents in the twelve-month period ending October 1st with an additional 800,000 non-permanent residents entering the country over the same period. Canada’s population growth rate, which exceeds 3%, is higher than China, India, or any G7 nation. Although we expect the pace of immigration to slow, the high levels experienced in recent years represent a significant demand tailwind for the foreseeable future. MCT’s portfolio will benefit from robust domestic demand through its positions in multiple sectors including real estate, financials and utilities.

The Trans Mountain Expansion Project (TMX), which has been under construction for more than 3 years, is expected to be completed and in service by Q2 2024. The project received a positive ruling from the Canada Energy Regulator in January which removed any outstanding regulatory uncertainty. TMX will add 690,000 barrels per day of incremental export capacity to the country’s only oil pipeline that services the West Coast. The pipeline will provide much-needed egress for Canadian energy producers and give them access to international oil prices. The Fund has approximately 32% of its portfolio allocated to Canadian energy companies, evenly split between producers and pipelines.

M&A has been picking up in the Canadian real estate sector the past two months. In December, it was announced that TPG, a global alternative asset manager, will acquire a 75% interest in a 5.1 million square foot industrial real estate portfolio in the Greater Toronto Area for $1.3 billion. The transaction implies a cap rate of approximately 4% which is significantly lower than the average 5.8% implied cap rates for Canadian industrial REITs. A few weeks later, Canada-based Tricon Residential announced an agreement to be acquired by Blackstone in a transaction valued at US$3.5 billion. The transaction represents a 30% premium to the stock’s previous closing price and highlights the significant disconnect that still exists between publicly-listed REITs and large private institutional buyers. We expect continued M&A activity in North American real estate markets throughout 2024 to serve as a catalyst for upward price momentum in publicly-listed REITs, especially given the disconnect in valuations between private real estate and the REIT sector overall.




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 February 2024 Market Commentary
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