Middlefield: New Asian deals to shield Canada from US falls

Canada based Dean Orrico said the country would ‘clearly’ be impacted by a US recession but shifting market dynamics will soften the blow.


Dean Orrico manager of Middlefield Canadian Income (MCT) is confident his country will withstand the worst of a US recession as it grows its exports to Asia.

Speaking at the awards ceremony in London on 1 November, Toronto based Orrico, said given that United States is its close neighbour and consumes 80% of exports, a prolonged downturn in the US economy would undoubtedly hit Canada. However, he stressed that his homeland is a ‘self-sufficient nation’.

The manager, whose £154m trust beat out JPMorgan American (JAM) to take the prize for best North American Equities trust, said he was particularly optimistic about real estate in Canada. The sector, which is his largest overweight in the portfolio, making up over 20%, is trading at discounted valuations with fundamentals ‘as good as we’ve seen them in over 10 years’.

Question: How would Canada be impacted by a US recession?

Dean Orrico

Clearly Canada would be impacted. Almost 80% of our exports go to the US market manager. However, when we think about commodities, and oil and natural gas, we’re now building egress to Asia. So we’re going to be exporting liquefied natural gas beginning in 2025, we’re now going to be increasing our oil exports to Asia as well, that’s bringing us international energy prices, which will soften the blow.

Canada is basically a self-sufficient nation. We’re a net exporter of energy. We’re a net exporter of electricity. And I think that keeps inflation lower and allows us to deal with some of the setbacks like a potential recession a lot better than other nations.

Question: You have a large overweight to real estate, why is that?

Dean Orrico

Property markets generally have really been hit very hard in the past 12-18 months, as interest rates have gone up property values, and REITs in particular, have gone down in price, but the values have held in very, very well.

So aside from office properties, industrial real estate in Canada, apartment rental in Canada, as well as open air grocery anchored retail and Canada are trading at discounted valuations with fundamentals as good as we’ve seen them in over 10 years.

Question: Energy, pipelines and utilities make up a large chunk of the portfolio, are the events in the Ukraine and the Middle East having an impact?

Dean Orrico

I think they have because I think what happened in February of last year, when Russia went into Ukraine, the world started to better appreciate the need for fossil fuels. And I think Canada by virtue of having an abundance of oil and natural gas, it’s a secure source of supply, the rule of law governs and we are extracting oil and natural gas in the most sustainable way of any other player global. We’re really investing significantly in things like carbon capture and storage. It’s a $25 billion project by the six largest energy businesses in Canada to basically capture the carbon and injected back into the ground to store it, the estimate that within the next six or seven years, they will reduce the carbon emitted from producing oil and gas by 90%. So as a result, we think this energy transition is going to take decades, and oil and gas is going to be necessary to affect the transition.




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