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What a $225-million Canadian fund manager has been buying and selling as stocks flirt with a bear market

  • Global Dividends
  • What a $225-million Canadian fund manager has been buying and selling as stocks flirt with a bear market
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Article by The Globe and Mail contributor Shirley Won | Published on May 24, 2022

Shane Obata is seeing a lot of buying opportunities in the markets these days as higher-quality stocks are dragged down with riskier names as part of the broader sell-off.

“A lot of companies are unjustifiably cheap right now,” says Mr. Obata, a portfolio manager and executive director of investments at Middlefield Capital Corp. in Toronto. “For the patient investor, there are lots of opportunities.

Mr. Obata, who manages nearly $225-million in assets as part of the firm’s overall $2.3- billion under management, says his team is primarily a “long-only shop,” meaning it typically uses a “buy and hold” strategy. It has been actively deploying cash and is nearly fully invested following the current market volatility.

His Middlefield Sustainable Global Dividend ETF (MDIV-T) has returned 3 per cent over the past year and has an annualized return of 7 per cent over the past three years as of April 30. The fund’s top sector as of March 31 was technology, at about 28 per cent, followed by health care at 13 per cent, and consumer discretionary and financials each at 11 per cent. Industrial stocks rounded out the top five at 10 per cent of the fund. Some of its top holdings include Alphabet Inc., Nvidia Corp., Schneider Electric SE and Costco Wholesale Corp.

The Globe recently spoke to Mr. Obata about what he’s been buying and selling.

Describe your investing style:

Our firm specializes in equity income across different fund structures including ETFs, mutual funds and closed-end funds. I’m focused on high-quality stocks with GARP [growth at a reasonable price] tilt. For me, high quality means proven business models and consistent profitability. With GARP, the ideal situation for us is when we find stocks that are expected to grow revenues and earnings much faster than the market – and are trading at similar valuations. We stick to global developed markets. Our main focus is North America, but we also have exposure in Europe and Japan.

What have you been buying?

John Deere is a stock that we’ve been adding to in the Middlefield Sustainable Global Dividend ETF. The increase in agricultural prices is a good backdrop for farmers and their incomes. Deere is a well-known name in the industrial sector and our top pick in the machinery space. It’s not terribly expensive either. Deere also has an interesting innovation side to the business with its precision agricultural technologies that help to control costs, increase efficiency and boost productivity and crop yields. It’s something we think can grow to 10 per cent of its business over time.

Another name we’ve been buying is RWE AG, a German utility. It’s a story about the growth in renewables. It’s a transition stock: RWE still has some exposure to fossil fuels but it is weaning off of them. As Europe looks to reduce its dependence on Russia more quickly, we think we’re going to see even more spending from the renewables build-out in Europe. RWE is one of our preferred names in the space. Germany is also a market-friendly country, which helps.

What have you been selling?

Taiwan Semiconductor Manufacturing Company is a stock we’ve been selling recently. It’s still a high-quality company and operates at the leading edge in terms of its technology, but we’ve been selling it for the macro risk. With Russia’s invasion of Ukraine, the question that comes up is whether this is something that could happen in Taiwan in the future with China. That overhang is going to stick around for quite some time. We just decided we’d rather take semiconductor exposure in other places, mostly through American companies.

What’s one stock you wish you owned right now?

Nutrien is a stock we own in some funds, but I don’t own it in MDIV. It comes back to the idea of resource security with the Russia-Ukraine conflict. Even if Russia was to call an end to this war tomorrow, countries are likely going to distance themselves from Russia for quite some time. Nutrien is a natural pick in that space. We don’t think it’s expensive right now given its valuation and free-cash-flow generation potential.

What investing advice do you give family and friends?

Focus on the long term and try not to worry so much about the headlines. There are always things to worry about in the markets. Optimists tend to win out over time. Stay focused on earnings and you should do fine over the long term.

This interview has been edited and condensed.

Have Questions?

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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.

  • Global Dividends
  • What a $225-million Canadian fund manager has been buying and selling as stocks flirt with a bear market
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