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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

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.

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  • 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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