O Canada

The North American market may act as a safe haven for investors in the near future...

M-Asset

Earlier this month, we wrote that investors looking to protect their portfolios against the Scylla and Charybdis of high inflation and war in Europe ay want to look at BlackRock Latin American (BRLA).

The trust’s exposure to commodities companies, along with the West’s need for alternative trading partners as countries seek to isolate Russia, mean there are some positive macroeconomic tailwinds working in BRLA’s favour.

But there is an argument to be made that these trends won’t only benefit Latin America. Although the US has its own problems, notably high inflation, it looks more immune to some of the difficulties counties in Europe are now facing particularly regarding energy security.

The same is also true of Canada. In fact, Canadian companies are arguably better placed than their southern peers to benefit from the current macroeconomic environment. Partly that’s due to the pressure inflation has placed on higher valuations. The Canadian stock market has performed well since the pandemic started in 2020 but has not seen the same sort of eye-watering earnings multiples that the US has.

Prospective interest rate hikes have not been as hard-hitting to equities as a results. Whereas the S&P 500 is down almost 13% in the year up to April 27th, the S&P/TSX index has fallen lass than 3%.

Another reason for that is that is likely to be the prevalence of energy, materials, and industrials companies on the market. Indeed, 16.97% of the MSCI Canada Index was comprised of energy companies at the end of March 2022 – very close to the 16.90% in the equivalent Brazilian index. These businesses have benefitted from high commodities prices and can also keep prices in line with inflation.

One trust that seeks to take advantage of opportunities in the Canadian market is Middlefield Canadian Income (MCT). The trust is overweight to energy and utilities and has substantial exposure to businesses in the oil and gas pipelines sector as well.

MCT also invests heavily in real estate investment trusts (REITs), with holdings in the commercial, industrial, healthcare, office, and residential sectors. Trust manager Dean Orrico wrote in a report published earlier this month that he expects REITs to manage inflation by raising prices, adding that some of the REITs in the MCT portfolio have inflation-linked contracts with tenants.

Canada has been slow to open up from the pandemic but, as that happens, rental rates are returning to pre-pandemic levels. Despite this, some REITs in the MCT portfolio continue to trade at a discount. These may tighten as ‘normality’ returns, providing some capital uplift to the MCT portfolio as well.

None of this is a guarantee of success. We continue to live in an extremely volatile world but, all things being equal, Canada looks like one of the more resilient options available to investors.

Past performance is not a reliable indicator of future results 

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.

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