Index
Macro Update
by Dean Orrico, President & CEO and Robert Lauzon, Managing Director & CIO
The S&P 500 generated a total return of -0.9% in October; the first negative month since April and only the second of the entire year. As we had predicted, volatility increased during the month with the VIX reaching its highest point since the yen carry trade unwind in late July. The TSX fared better this month with a total return of 0.9%, adding to a solid period of outperformance from Canadian equities since late June.
The American public has voted, and Donald Trump will re-take the White House for a second term as President. Although several elections for the House of Representatives remain too close to call, we anticipate a red sweep with betting markets pricing over a 90% chance of the Republican Party winning a House majority. Investors have the benefit of hindsight when assessing the impacts of a Trump presidency under a Republican-controlled Congress; however, uncertainty remains as to how aggressively the new Administration will push forward with various campaign promises.
There were three notable market reactions in the wake of the election. First, cyclical sectors outperformed with Financials, Industrials and Energy making significant gains. These moves can be attributed to Republicans’ positions on deregulation and corporate tax cuts together with less-crowded positioning entering the election. Second, regional banks and companies tied to M&A speculation rallied on the prospect of less restrictive postures from the FTC and the DoJ. Goldman Sachs estimates that M&A activity will rebound by 20% in 2025 following a 15% decline this year. We have exposure to this thematic through positions in regional banks as well as biotechnology stocks. Finally, bond yields spiked given the more expansionary and potentially inflationary policy agenda from the Trump Administration.
In our view, the two most prominent issues for bond yields are related to government spending and trade policy. US 10-Year bond yields rose 50 basis points in October as bond vigilantes started pricing in the fiscal challenges that lay ahead for Congress. Over time, we expect government spending to be rationalized, and this is likely to reduce the bond market’s concerns about rising deficits. Moreover, stronger economic growth under Trump’s pro-business agenda could improve debt-to-GDP ratios and further alleviate concerns. Regarding trade, if widespread tariffs were implemented, it would likely result in higher consumer prices. Considering much of Trump’s election platform focused on inflation and bringing down prices, we believe his tariff rhetoric is largely performative and being used as a negotiation tactic. That said, there is a real risk that tariffs will accelerate once his Administration takes office, particularly against China. This represents one of the biggest risks to the market over the medium-term, but we remain optimistic that tariff threats have more bark than bite.
With the election now behind us and seasonality tailwinds starting to kick in, we believe the setup for a year-end rally is attractive. November marks the start of the best three-and-six-month periods of the year (going back to 1950) for the S&P 500. Major indices pulled back in October, with many finding firm support at their 50-day moving averages. Republicans controlling all branches of government has been a strong backdrop for the market historically, with an average return of 13% since 1932.
Real Estate
Middlefield Fund Tickers & Codes: MREL / MID 600 / RS / RS.PR.A
by Dean Orrico, President & CEO
After returning 23% in Q3, the TSX Real Estate sector gave back some of its recent gains, generating a total return of -5.7% in October. The sharp rebound in bond yields was the main culprit for the pullback, with 10-Year bond yields rising 26 basis points in Canada and a staggering 50 basis points in the US. Notwithstanding the recent spike in term premium, we continue to believe concerns related to government spending and trade wars are overblown. We anticipate longer-dated bond yields to drift lower over time which should support further improvement in sentiment for the sector.
Canadian REITs are in the middle of Q3 earnings season and results thus far have been positive. Retail REITs have been among the first to report and they have demonstrated solid NOI growth underpinned by occupancy gains, contractual rent escalators and positive lifts on new / renewal leasing. First Capital reported 12.4% renewal spreads and 3.7% SPNOI growth while Primaris REIT has increased its occupancy by 2.4% over the past year, setting the company up for 6% annual AFFO per unit growth over the next two years. These results reflect the attractive fundamentals in Canadian retail where increases to demand, driven by primarily by population growth, have outpaced new supply which has been virtually non-existent in Canada for the past decade. We maintain a constructive view on Canadian Retail REITs and expect steady and consistent earnings growth over the coming years.
As we alluded to last month, seniors housing is among our favourite asset classes within the real estate sector. While we await Q3 results from Chartwell and Sienna next week, we were very pleased with the Q3 results from our core US holdings, Welltower and Ventas. Within their seniors housing segments, the two companies grew same-store NOI by 23% and 15.3%, respectively, leading to FFO beats and increases to full-year guidance. We are optimistic that Chartwell and Sienna can deliver similar performance when they report next week and maintain a positive outlook on our seniors housing positions both in Canada and the US.
Healthcare
Middlefield Fund Tickers & Codes: MHCD / MID 625 / SIH.UN
by Robert Moffat, Portfolio Manager
The S&P 500 Healthcare sector underperformed in October, generating a total return of -4.6%. We attribute the underperformance to a combination of factors including seasonality headwinds and concerns around the election. As we have previously stated, we do not believe healthcare will be a major priority for the Trump Administration given his unsuccessful and costly attempt to repeal the Affordable care act in 2017. We believe the recent stretch of underperformance presents an attractive entry point into the sector and recommend adding exposure at this time.
MedTech stocks bucked the trend this month with several new product launches driving extraordinary growth. Intuitive Surgical (ISRG) recently launched its da Vinci 5 robotic surgery system which uses Force Feedback technology to detect the push and pull forces of surgical instruments. The technology can deliver up to 43% less force on tissue during surgery with AI-powered post-operating insights. The company has revolutionized soft-tissue surgery and established strong competitive moats to solidify its position as the dominant player in surgical robotics. In Q3, ISRG exceeded high expectations with procedure volume growth of 18% and 15% growth in its global installed base. Boston Scientific (BSX) also exceeded expectations and raised its guidance this quarter with organic topline growth of 18%. Similar to ISRG, BSX recently launched an industry-changing device with its FARAPULSE Pulsed Field Ablation (PFA) System to treat atrial fibrillation. Unlike traditional thermal ablation methods such as radiofrequency or cryoablation that use extreme heat or cold to create lesions on heart tissue, FARAPULSE uses electrical pulses to selectively ablate heart tissue with high precision. The company has already treated over 125k patients with PFA and is rapidly converting the market from thermal treatments to PFA.
New product launches can support durable earnings growth for multiple years. ISRG and BSX are two great examples of the many growth opportunities we are seeing across the sector. Healthcare is expected to generate over 20% EPS growth next year — the highest of any sector in the S&P 500.
Infrastructure
Middlefield Fund Tickers & Codes: MINF / MID 265 / MID 510 / ENS / IS / IS.PR.A
by Robert Lauzon, Managing Director & CIO
Canadian utilities and pipeline companies delivered strong performance in Q3, with Enbridge (ENB) reporting solid results and reaffirming its 2024 guidance. As the operator of North America’s largest natural gas utility, ENB’s recent acquisition of gas infrastructure south of the border is expected to drive a rate base CAGR of 8% through 2027. With critical infrastructure spanning both Canada and the US, ENB is well-positioned to capitalize on key tailwinds, including surging demand for natural gas driven by AI advancements, industrial growth, and onshoring. The accelerating need for affordable and reliable energy will enhance ENB’s visibility and solidify its long-term growth outlook.
Alberta remains an attractive hub for hyperscalers and large tech companies seeking stable and affordable power. Both Capital Power (CPX) and TransAlta (TA) are well-positioned to benefit from Alberta’s supportive regulatory environment, an abundant power supply, and a coordinated effort to attract data centers to the province. CPX reported Q3 results above consensus, driven by record generation from its US assets. CPX is in active discussions with US clients to extend power contracts earlier than anticipated, reflecting favorable market conditions at higher rates.
Big Tech companies, including Amazon and Google, have goals to secure several hundred MW of electricity from small modular reactors (SMRs) by 2030. This underscores the growing role of SMRs in meeting the rising energy demands of AI in the latter portion of the decade. Westinghouse, owned by Brookfield Renewables (BEP), stands to benefit greatly from this resurgence in nuclear energy. As a global leader in nuclear engineering and services, Westinghouse is well positioned to play a key role over the next several years under the current demand backdrop. Bruce Power, partially owned by TC Energy (TRP), is one of the largest nuclear power generation facilities in the world and generates ~30% of Ontario’s electricity. Bruce Power’s scale and capacity position TRP to benefit from structural tailwinds impacting demand for power in North America.
Technology & Communications
Middlefield Fund Tickers & Codes: MINN / SIH.UN / MID 925 / MDIV
by Shane Obata, Portfolio Manager
Q3 earnings have confirmed that the AI revolution is a lasting, multi-year investment cycle driven by widespread applications. Leading tech companies not only posted solid results but also emphasized their commitment to ongoing AI spending. Following a significant rise in AI-related capital expenditures in 2024, these companies are expected to increase spending further in 2025, with growth projected to exceed 10% over 2024 levels. As Meta CFO Susan Li noted, “We’re growing our infrastructure investments significantly this year, and we expect significant growth again in 2025.” This sustained commitment highlights AI’s strategic importance across industries.
AI’s transformative impacts extend beyond tech, influencing sectors like finance, where companies see opportunities to streamline operations. Morgan Stanley, for instance, is focused on using AI to boost productivity across its business. CEO Ted Pick recently highlighted AI’s potential to enhance client interactions, enabling advisors to access real-time data and ongoing client conversations, resulting in “crisper and more effective conversations.” He expects AI will encourage more proactive client engagement, allowing advisors to offer tailored products and services based on deeper insights. This approach shows how AI can empower, not replace, advisors by equipping them with valuable insights to improve client service and drive growth.
The key takeaway is clear: AI represents a major technological shift poised to reshape the global business landscape. Companies that adopt AI in their operations will secure a strong competitive advantage, while those that resist may fall behind. This is not just a technology upgrade cycle, but a fundamental transformation that will redefine business operations, competition, and growth for years to come. The AI revolution is here to stay, with its influence reaching across industries.
Resources
Middlefield Fund Tickers & Codes: MID 800 / MID 161 / MID 265 / MRF FT LP / Discovery FT LP
by Dennis da Silva, Senior Portfolio Manager
The price of gold climbed to another all-time high this month, settling just under US$2,800/oz at month end. Escalating geopolitical tensions, easing monetary policy and uncertainty related to the US election were all macro tailwinds that supported the haven asset. A recently published report by the World Gold Council highlighted demand for gold has more than doubled year-over-year while the recent quarter set a record for third quarter gold demand.
Despite gold being up 33% year-to-date, historical data suggests there is more runway ahead. The current bull market began in September 2022 and gold is up 65% over that period. This compares to the typical bull cycle return of 111% (median 79%) since 1971. Amidst elevated gold prices, we expect gold producers to benefit from a material free cashflow windfall. Given the currently healthy state of balance sheets, this has the potential to drive even stronger capital returns than in the past. The TSX gold sub-industry was up 7.3% in October and has returned 41% year-to-date.
OPEC+ stabilized oil markets this month by halting the planned addition of 2.2 million barrels per day until year-end. With an uncertain outlook for 2025, the pause aligns with their June commitment to raise output only if justified by demand. OPEC+ relies on a breakeven price above US$70 per barrel to fund fiscal spending, with Brent—their benchmark—hovering around this level in recent months.
While short-term natural gas prices are influenced by weather, LNG demand is steadily establishing a price floor as North America increasingly integrates with global markets. Mitsubishi Power expects global gas turbine orders to rise by 50% annually through 2026, partly due to data center expansion; adding to the global demand for natural gas. The expiration of the Russian gas transit agreement with Ukraine in December will push Europe to intensify their LNG diversification strategy. By 2025, when LNG Canada reaches full capacity, roughly 10% of Canadian natural gas production will be exported, aligning Canadian prices more closely with US benchmarks such as Henry Hub.
Exchange Traded Funds (ETFs)
Mutual Funds (FE | F)
TSX-Listed Closed-End Funds
| Fund | Ticker | Strategy |
|---|---|---|
| MINT Income Fund | MID.UN | Equity Income |
| Sustainable Innovation & Health Dividend Fund | SIH.UN | Innovation & Healthcare |
TSX-Listed Split Share Corps. (Class A | Preferred)
| Fund | Ticker | Strategy |
|---|---|---|
| E-Split Corp. | ENS | ENS.PR.A | Energy Infrastructure |
| Real Estate Split Corp. | RS | RS.PR.A | Real Estate |
| Infrastructure Dividend Split Corp. | IS | IS.PR.A | Infrastructure |
LSE-Listed Investment Fund
| Fund | Ticker | Strategy |
|---|---|---|
| Middlefield Canadian Income Trust | MCT | Canadian Equity Income |
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