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.
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.
