Middlefield Canadian Income PCC (the "Company")
Including Middlefield Canadian Income - GBP PC (the "Fund”), a cell of the Company
Registered No: 93546
Legal Entity Identifier: 2138007ENW3JEJXC8658
ANNUAL FINANCIAL REPORT
The Company hereby announces the publication of its full unedited annual financial report for the year ended 31 December 2024 (the "AFR”).
In accordance with Listing Rule 6.4.1, a copy of the AFR has been submitted to the National Storage Mechanism and it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The AFR is also available from the 'Trust Documents' section of the Company's website: https://middlefield.com/funds/uk-funds/middlefield-canadian-income-trust/
Enquiries:
Secretary
JTC Fund Solutions (Jersey) Limited
Tel.: 01534 700000
Dean Orrico
President
Middlefield International Limited
Tel.: 01203 7094016
END OF ANNOUNCEMENT
Middlefield Canadian Income Trust
Annual Report and Accounts
For the year ended 31 December 2024
LON: MCT
Focusing on high levels of stable and increasing income together with capital growth, this Fund invests in high quality, Canadian large capitalisation businesses. Middlefield Limited, the Fund's investment manager, is a private and independent firm located in Toronto, Canada, and is regulated by the Ontario Securities Commission.
Financial Highlights
2024 DIVIDENDS PAID
5.3p per share
1.325p per share quarterly
5.5p per share New Dividend Guidance for 20251
YIELD
4.6%
SHARE PRICE
116.00p
NAV PER SHARE
134.05p
NET ASSETS
£142.7m
1. This is a target only and does not constitute, nor should it be interpreted as, a profit forecast.
Why Middlefield Canadian Income PCC?
Who is this fund for?
This Fund is for long-term investors seeking dividends and capital appreciation from a diversified portfolio of stable, profitable businesses domiciled primarily in Canada.
Reasons to buy
Unique
The UK's only listed Canadian equity fund focused on high income - admitted to the FTSE UK All-Share Index in 2011.
Proven
Outperformance over the period since inception in 2006. The Fund's total return for 2024 was 20.6 per cent versus the benchmark total return of 7.6 per cent.
Diversification
UK investors are underexposed to Canadian equities - Canada is one of the largest investable economies in the developed world.
High Income
Canadian equities offer a higher yield compared to other developed markets. MCT has consistently paid dividends in excess of 5p per share per annum since 2017 and increased its dividend in 2023, 2024 and 2025.
Stability
Canada is a member of the G7 and offers one of the most stable political and financial systems in the world.
Governance
Experienced Board of Directors with an independent majority, re-elected annually by shareholders to protect their interests.
A member of the Association of Investment Companies
Further details about the Company, including the latest annual and half yearly financial reports, fact sheets and stock exchange announcements, are available on the website at www.middlefield.co.uk/mcit.htm
Contents
Strategic Report
Key Information 4
Historical Performance 5
Chairman's Statement 6
Investment Manager's Report 11
Top Holdings 13
ESG Policy 16
Business Model 22
Biographies 26
Corporate Information 29
Report of the Directors 36
Corporate Report
Statement of Directors' Responsibilities 40
Directors' Remuneration Report 41
Corporate Governance Statement 43
Report of the Audit Committee 48
General Shareholder Information 51
General Data Key Investor Document and Related Data 52
Independent Auditor's Report on the Fund 53
Financial Statements
Statement of Financial Position of the Fund 60
Statement of Comprehensive Income of the Fund 61
Statement of Changes in Redeemable Participating Preference Shareholders' Equity of the Fund 62
Statement of Cash Flows of the Fund 63
Notes to the Financial Statements of the Fund 64
Independent Auditor's Report on the Company 81
Statement of Financial Position of the Company 84
Notes to the Financial Statements of the Company 85
Definitions 86
Alternative Performance Measures 87
Key Information
This Fund invests in larger capitalisation Canadian and U.S. high yield equities with a focus on companies that pay and grow dividends.
Exposure to Key Canadian Themes & Industries
Canadian companies are amongst the world leaders across the real estate, financial and energy and power sectors.
Real Estate
Canada has had the highest population growth rate in the developed world. Immigration tailwinds and a highly educated workforce are expected to support ongoing demand for real estate in Canada. Middlefield is one of the top real estate investors in Canada with over 40 years of experience and $450M+ in AUM across real estate strategies.
Financials
One of the world's most sophisticated and well-capitalised banking systems, Canada's banks are well-positioned to consistently grow their dividends over time. Canadian financials have historically demonstrated less volatility than peers during periods of market uncertainty.
Energy and Power
North American energy is expected to play a vital role in energy security and the energy transition over the coming decades. Its domestic power market benefits from an abundance of renewable energy sources and robust demand for electricity driven by immigration, growing corporate demand, and improving global accessibility.
Key Data as at 31 Dec 2024
Historical Performance
As at 31 December 2024
Performance Since Inception to 31 December 2024
As at 31 December 2024
Notes:
1. Net asset value total returns (in Sterling, net of applicable withholding taxes, fees, and including the reinvestment of dividends).
2. The Fund's benchmark, the S&P/TSX Composite High Dividend Index ("Benchmark”), has been currency adjusted to reflect the Canadian Dollar ("CAD”) returns from inception to October 2011 (while the Fund was CAD hedged) and Sterling ("GBP”) returns thereafter.
3. Prior to 31 October 2024, the Fund's Benchmark as well as the S&P/TSX Composite Index, were calculated gross of withholding tax. Beginning 31 October 2024, the Benchmark and the S&P/TSX Composite Index are calculated net of a 15% withholding tax and all period returns have been restated on this basis.
| Recent Performance | 1 Mth | 3 Mth | 6 Mth | YTD | 1 Year |
| Share Price | -10.8% | 3.6% | 15.3% | 20.6% | 20.6% |
| NAV | -4.2% | 2.6% | 12.9% | 15.1% | 15.1% |
| Benchmark | -4.7% | 1.1% | 7.7% | 7.6% | 7.6% |
| S&P/TSX Composite | -4.5% | 4.2% | 9.9% | 13.5% | 13.5% |
| Long-Term Performance | 3 Year annualised | 5 year annualised | 7 Year annualised | 10 year annualised | Since Inception annualised1 |
| Share Price | 4.3% | 8.2% | 7.2% | 6.7% | 6.8% |
| NAV | 3.3% | 7.2% | 6.8% | 7.4% | 7.2% |
| Benchmark | 5.2% | 7.9% | 6.9% | 7.1% | 6.1% |
| S&P/TSX Composite | 6.4% | 9.8% | 8.3% | 8.4% | 6.4% |
| Long-Term Performance | 3 Year cumulative | 5 year cumulative | 7 Year cumulative | 10 year cumulative | Since Inception cumulative1 |
| Share Price | 13.5% | 48.3% | 62.8% | 90.8% | 239.0% |
| NAV | 10.2% | 41.9% | 58.1% | 104.1% | 262.7% |
| Benchmark | 16.4% | 46.3% | 59.2% | 97.6% | 199.1% |
| S&P/TSX Composite | 20.5% | 59.3% | 74.6% | 124.4% | 215.0% |
Past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. All price information is indicative only.
Total returns including the reinvestment of dividends for all returns. Fund returns are net of fees.
Composite of monthly total returns for the S&P/TSX Income Trust Index from inception to 31 December 2010 and the S&P/TSX Composite High Dividend Index (formerly named the S&P TSX Equity Income Index).
Currency adjusted to reflect CAD$ returns from inception of MCT to Oct 2011 and GBP returns thereafter since MCT was CAD$ hedged from inception to Oct 2011
Prior to 31 October 2024, the Fund's Benchmark, as well as the S&P/TSX Composite Index, were calculated gross of withholding tax. Beginning 31 October 2024, the Benchmark and the S&P/TSX Composite Index are calculated net of a 15% withholding tax and all period returns have been restated on this basis.
Chairman's Statement
Michael Phair
Chairman
It is my pleasure to introduce the 2024 Annual Financial Report for Middlefield Canadian Income PCC ("MCT” or the "Company”) and its closed-ended cell known as Middlefield Canadian Income - GBP PC (the "Fund”). The Fund invests primarily in dividend-paying Canadian equities, with the objective of providing shareholders with a high level of dividend as well as capital growth over the longer term.
Investment Performance
The Fund delivered very good relative performance in 2024. MCT generated total returns of 20.6 per cent on its share price and 15.1 per cent on net assets, both of which were higher than the benchmark total return of 7.6 per cent. Financials, Energy, and Utilities were all positive contributors primarily due to sector allocation and stock selection gains. The Investment Manager believes that 2024 represented the early stages of a sustained outperformance following a period of challenging market conditions for the Fund's core sectors. In January 2025, the Fund's dividend was increased from 5.3p to 5.5p per share per annum.
Over 2024, the discount to net asset value at which the Fund's shares traded narrowed from -16.8 per cent at the start of the year to -13.5 per cent at the end. The discount moved to within -6 per cent at the beginning of December 2024 which coincided with the share price increasing to 131.25p, a high point for the year. This increase reflected the buying activity by Saba Capital Management L.P. ("Saba”) which first announced a notifiable holding in the Fund's shares in April 2024, and which has announced further increases in its holding since such date. Saba's current total interest in the Fund's shares (comprising its direct and indirect exposure) is estimated to be 29 per cent. Recent developments regarding Saba are discussed below under "Engagement with Saba”.
Investment Management
The Board has regular contact with the Investment Manager, Middlefield Limited, to discuss portfolio strategy and review its investment approach, gearing and sector allocations. We remain satisfied that the Investment Manager is applying the strategy consistently and professionally and are confident that the Investment Manager's outlook and the Fund's corresponding positioning are capable of delivering good performance over time.
Middlefield Limited, the Fund's Investment Manager, has 45 years of investing experience. The Investment Manager uses an actively managed strategy, allowing it to take advantage of market dislocations across Canada and the U.S. In 2024, Canada was ahead of other developed countries in reducing their policy rates after sustained downward trends in inflation. Meanwhile, the U.S. Federal Reserve's monetary policy remained restrictive for longer. In light of the high levels of cash flow and dividends that Canadian equities offer, and the valuation discounts at which they trade relative to U.S. companies, the Board remains supportive of the Investment Manager's decision to be substantially invested in Canadian equities. In Q4 2024, against the backdrop of an improving outlook for the Canadian economy as well as a peaking of 10-year government bond yields in the U.S. and Canada, the Fund increased its exposure in Canadian energy from c. 19 per cent to c. 22 per cent which remains above the benchmark, while Real Estate remains the most overweight sector in the Fund relative to the benchmark.
Shareholder Engagement
Increasing investor interest in the Fund remains one of the Board's highest priorities. The Board continues to promote the Company through the Investment Manager's investor relations initiative, which is dedicated to keeping our shareholders well-informed, especially in times of market turmoil. The Investment Manager provides regular updates through commentaries and articles to get their perspectives directly. This content is accessible on the Investment Manager's website, where it generates regular insights into the portfolio's outlook and the decision-making process: Middlefield Canadian Income Trust Content. In addition, the Trust remains engaged with Kepler Partners. Kepler Partners continues to introduce the Investment Manager to new investors throughout London and its surrounding regions, while consistently producing research aimed at raising the profile of the Fund. Kepler Partner' coverage of the Fund can be accessed at: Middlefield Canadian Income Research. The Board also works with Buchanan, a public relations firm tasked with enhancing the Fund's reputation among retail investors. The Fund's ongoing press engagements are featured on our website under "Featured Press”. Alternatively, prospective investors can subscribe to email updates on the Fund's website to be updated regularly: Middlefield Canadian Income Trust | Middlefield Group.
Fund Sector Weights Compared to Benchmark as at 31 December 2024
| Sector Allocation | MCT | Benchmark | Over/Underweight |
| Financials | 27.3% | 30.0% | -2.7% |
| Energy | 22.4% | 15.0% | 7.4% |
| Real Estate | 18.5% | 4.4% | 14.1% |
| Pipelines | 16.9% | 15.8% | 1.1% |
| Utilities | 9.5% | 13.8% | -4.3% |
| Materials | 2.8% | 5.4% | -2.6% |
| Communication Services | 2.6% | 10.4% | -7.8% |
| Consumer Discretionary | 0.0% | 3.0% | -3.0% |
| Industrials | 0.0% | 0.8% | -0.8% |
| Consumer Staples | 0.0% | 0.8% | -0.8% |
| Health Care | 0.0% | 0.7% | -0.7% |
| Information Technology | 0.0% | 0.0% | 0.0% |
| Total | 100.0% | 100.0% |
The background to the Fund's performance is explained in depth by Mr Dean Orrico in the Investment Manager's accompanying report.
Engagement with Saba
Since the Fund's year end, on 10 February 2025 the Fund, together with three other UK-listed closed-end funds, received a requisition notice from Saba, marking the second phase of Saba's recent activist campaign in the UK-listed closed-end fund sector. The first phase commenced on 18 December 2024 with Saba requisitioning general meetings at seven UK-listed closed-end funds, proposing resolutions (each of which later failed) to remove the current independent directors of those seven funds and replace them with Saba's own appointees, with a view to also terminating the management contracts and, in due course, replacing the investment managers with Saba.
The requisition notice received by the Fund on 10 February 2025 was for the approval by shareholders of the taking of all necessary steps to implement a scheme or process by which shareholders would become (or have the option to become) shareholders of a UK-listed open-ended investment company (or similar open-ended investment vehicle) implementing a substantially similar strategy to the Fund. Such scheme or process could entail shareholders rolling into an existing or newly established UK-listed open-ended investment company (or similar open-ended investment vehicle), in either case managed by the Fund's existing investment manager or one of its affiliates.
Following consultation with a number of the Fund's largest shareholders including Saba, and following constructive discussions with Saba, on 21 February 2025 the Fund announced that Saba had agreed to withdraw its requisition notice for a period of 60 days to enable the Fund and its advisers to formulate proposals that are in the best interests of all shareholders.
At the current time, the Board is in the process of considering a number of strategic options in the best interests of shareholders as a whole. A further announcement regarding future proposals which the Fund may put to shareholders will be made in due course.
Gearing
The Fund reports its gearing relative to net and total assets in its monthly fact sheet. Gearing relative to total assets was consistent throughout 2024. This compares to the Fund's upper gearing limit of 25 per cent. of its total assets at the time of drawdown. Net gearing, which represents borrowings as a percentage of net assets, is the AIC standard measure of gearing. Net gearing at the start of the year was 17.2 per cent and ended the period on 31 December 2024 at 19.3 per cent.
The cost of borrowing has come down in 2024 due to the Bank of Canada cutting rates by a total of 175 basis points throughout the year. We anticipate further declines in borrowing costs as the BoC is expected to continue its easing cycle in 2025. The Board continues to believe the use of gearing is warranted at prevailing interest rates due to an expected total return that exceeds total borrowing costs. The Board will continue to weigh the benefits of gearing against the costs and monitor the spread between interest expenses and the yield of the portfolio to ensure the use of leverage remains in the best interest of shareholders. On 3 April 2024, the credit facility was amended to replace Banker's Acceptances with CORRA (Canadian Overnight Repo Rate Average administered and published by the Bank of Canada) loans.
Earnings and Dividends
In light of the excess revenue earnings generated by the Fund this year, together with the prospect of dividend growth from the underlying portfolio, the Board approved a 0.2p increase to the annual dividend target in early 2025 to 5.5p for 2025. This is a target only and should not constitute, nor should it be interpreted as a profit forecast.
Quarterly interim dividends each of 1.325p per share were paid on 31 January 2024, 30 April 2024, 31 July 2024 and 31 October 2024 representing a 1.92 per cent. increase to quarterly payments made in 2023.
Consistent dividend growth is a core consideration for the Fund's security selection process and factored into the Board's decision to increase the dividend. The Company's revenue earnings per share totalled 5.61p for the current year, reflecting a dividend coverage ratio of 1.06. This compares to dividend coverage ratios of 1.07 in 2023 and 1.16 in 2022. The Board regularly reviews the Fund's dividend coverage and, subject to market conditions as well as the Fund's earnings, it will continue to consider whether further dividend increases are warranted in the future.
Directors' Remuneration
For 2024, the directors' remuneration remained at £36,000 per annum for the chairman of the Board, £32,000 per annum for the chairman of the audit committee and £29,000 per annum for all other directors bar Mr Orrico, who has waived his entitlement for remuneration for acting as a director. The last increase was on 1 July 2023.
Related Party Transactions
The Company's related parties are its directors and the Investment Manager. There were no related party transactions (as defined in the Listing Rules) during the year under review, nor up to the date of this report. Details of the remuneration paid to the directors and the Investment Manager during the year under review are shown in note 13.
Material Events
Save for the Saba requisition and the Board's ongoing consideration of future strategic options for the Company following engagement with Saba as referred to above, the Board is not aware of any significant event or transaction which has occurred between 1 January 2025 and the date of publication of this statement which could have a material impact on the financial position of the Fund.
Company and Fund Annual General Meetings
At each of the Company and Fund Annual General Meetings held on 13 June 2024, all resolutions, relating to both ordinary business and special business were duly passed.
Board Composition and Succession Planning
The Board frequently reviews its succession planning strategy and has taken multiple steps in recent years to refresh its composition. We are pleased with the significant progress made to ensure the highest standards of good corporate governance. These steps include the appointment of four new nonexecutive directors over the past five years: Mr Michael Phair (on 13 June 2019), Ms Kate Anderson (on 12 April 2021), Ms Janine Fraser (on 13 September 2022) and Mr Andrew Zychowski (on 30 June 2023).
The Board currently comprises five nonexecutive directors, of whom four are independent and 40 per cent are female, including the senior independent director.
Contact
Shareholders can write to the Company at its registered office or by email to the Secretary at middlefield.cosec@ JTCGroup.com.
Principal Risks and Uncertainties
Trade policy uncertainty will remain a persistent overhang in the coming months, affecting business confidence, capital investment, and supply chain planning across North America. With the looming USMCA renegotiation deadline and ongoing discussions around tariffs, businesses face heightened risks when making strategic decisions. Companies reliant on cross-border trade may hesitate to expand operations, allocate capital, or engage in M&A, given the potential for new trade barriers and shifting regulatory frameworks. This uncertainty could lead to reduced investment and prolonged supply chain inefficiencies, ultimately weighing on economic growth and corporate earnings.
Additionally, although discussions to date between the Board and Saba have been constructive, uncertainty remains over how the Company will proceed going forwards. The Board remains mindful of the need to act at all times in the best interests of shareholders as a whole and wishes to avoid future engagement in costly and time-consuming activist shareholder campaigns.
Despite inflation moderating in 2024, the risk of an upside surprise in inflation remains a key concern. Stickier inflation could erode consumer purchasing power and increase the cost of borrowing, stifling economic activity. Persistently high inflation could delay further rate cuts from central banks, which could exacerbate financial stress, leading to higher delinquency rates and weaker household consumption.
The combination of expanding fiscal policies and easing monetary conditions could further strain government balance sheets in 2025. Canada and the US continue to run large fiscal deficits, with rising debt levels fuelling concerns about long-term sustainability. Increased government borrowing costs, especially in a higher-for-longer rate environment, could lead to investors demanding higher risk premiums and increased volatility in bond markets and sovereign credit ratings.
Geopolitical concerns in 2024 centred on the wars in Ukraine and the Middle East, trade policy between the US and its trading partners, and a change in leadership in Canada and U.S. Although there are efforts to reach a ceasefire in both Ukraine and Israel, these conflicts all have the potential to disrupt global trade routes, commodity prices, and investor sentiment. The risk of further escalation could lead to supply shocks in energy markets, driving up commodity prices and putting renewed pressure on inflation. In addition, strained US-China relations - particularly over trade, technology and Taiwan - could introduce market volatility, affecting global supply chains and investment flows.
Managing Risks
The Board places significant emphasis on the Company's risk assessment and the management of substantial risks. The Board prioritises this aspect, guided by its evaluation of the risks inherent in the Company's operations. It oversees the controls implemented by the Board, the Investment Manager and other service providers. These evaluations and oversight activities are documented in the Company's business risk matrix assessment, which remains an effective instrument for identifying and tracking primary risks.
The directors consider the principal risks of the Company to be those risks, or a combination thereof, that may materially threaten the Company's ability to meet its investment objectives, its solvency, liquidity or viability. In assessing the principal risks, the directors consider the Company's exposure to and likelihood of factors that they believe would result in significant erosion of value, such as the possibility of a recession, the ability of Canada to diversify its economy away from natural resources, ongoing geopolitical tensions, the impact of climate change risk on investee companies, foreign exchange rates and the impact of higher interest rates on the Company and investor sentiment.
At the time of this report, trade policy uncertainty, interest rates, and geopolitical tensions continue to have an impact on markets at both macro and micro levels. Growing geopolitical tensions can increase the risk of supply chain shocks and spikes in commodity prices. While the long-term severity and the impact on the Company's principal risks and viability cannot currently be predicted with any accuracy, it is expected that a prolonged war in the Middle East would have detrimental effects on market sentiment, which could affect the Company's asset values.
Outlook
Canada is well-positioned for economic resilience and market outperformance, supported by a lower rate environment, strong corporate fundamentals, and favourable structural tailwinds across key sectors. 2024 served as a strong base for the Fund's core sector exposures, and we expect to build on that momentum. Canadian equities continue to offer attractive valuations, robust earnings growth, and compelling risk-adjusted returns relative to global peers. MCT remains strategically positioned to capitalise on these trends, with its core exposure in financials, real estate, energy, pipelines, and utilities - sectors that are well insulated from external trade policy uncertainty and provide strong income generation, stability, and long-term growth potential. The Fund does not hold significant exposure to industries most vulnerable to tariffs, such as manufacturing, autos, and materials, reducing its reliance on unpredictable trade negotiations.
Despite having similar expected earnings growth over the next two years, Canadian equities continue to trade at steep valuation discounts to US stocks. With a circa 4.5 per cent dividend yield, the Fund also provides a stable and growing stream of income to investors in the form of quarterly distributions. We believe the current valuation discount embedded in Canadian equities offers a compelling entry point into high-quality Canadian companies. We continue to advocate that UK investors seeking North American equity exposure should allocate capital to Canada.
We look forward to an ongoing dialogue with shareholders in order to inform our decision making process going forward and to enable us to continue to act in the best interests of all shareholders.
Michael Phair
Chairman
24 March 2025
Middlefield Group is a private and independent asset manager focused on equity income investment strategies. Located in Toronto, Canada, the company oversees a suite of funds, many of which have been recognised for excellence in various investment categories. Middlefield specialises in managing diversified equity income strategies for UK and Canadian investors with a particular focus on delivering stable distributions and capital appreciation over the long term.
Investment Manager's Report
Dean Orrico
2024 was an exceptional year for MCT unitholders, as we look to build on the momentum for continued growth into 2025. Despite both the TSX Composite and S&P 500 closing near all-time highs, many areas of the market, such as dividend payers and small-caps, did not meaningfully participate in the 2024 market rally. Technology and communication services stocks led to the upside while cyclical and value sectors lagged. In British Pounds, shares in the Fund generated a total return of 20.6 per cent and a NAV total return of 15.1 per cent. In local currency, the S&P 500, NASDAQ Composite, and the TSX Composite returned 25 per cent, 30 per cent and 22 per cent, respectively. The TSX lagged the S&P 500 by 3 per cent in 2024, due to its lower exposure to technology stocks and greater weighting to cyclical and value sectors. The Fund's benchmark is more concentrated in higher-yielding dividend stocks and returned 9.6 per cent, lagging the TSX by nearly 12 per cent. Price-to-earnings multiples remain depressed for the TSX, resulting in a 4x multiple discount relative to the S&P 500.
We are encouraged by several trends that emerged in mid-2024. Firstly, the Bank of Canada (BoC) began its first rate-cutting cycle in 4 years through a series of rate cuts totalling 175 basis points. Meanwhile, 10-year bond yields fell by more than 100 basis points from their 2023 highs as inflation concerns abated. Second, market breadth improved as companies and sectors that lagged throughout 2023 and H1'2024 benefitted from a relief rally. We believe this market broadening could represent the early stages of a prolonged recovery in dividend-paying stocks that should continue throughout 2025.
In British Pounds, the Fund's net asset value generated a total return of 15.1 per cent. Stock selection within the energy sector was the biggest contributor to performance in 2024 following a difficult 2023 period, with Enbridge and TC Energy among the Top 5 biggest contributors to performance. Utilities were the next biggest contributor, with Capital Power generating a total return of 77.9 per cent due to its strategy to supply power for upcoming AI data centres in Canada. Capital Power remains a large overweight position relative to the benchmark and has been a consistent Top 10 holding in the Fund.
President Trump's second term has introduced significant trade policy uncertainty. Despite all the trade noise, Canada's economy remains on sound footing and is compelling for investors seeking attractive valuations and higher levels of income. While the scale and scope of potential US tariffs remain unpredictable, the Fund is well-positioned due to its diversification across resilient, high-quality sectors. With a focus on Canadian financials, pipelines, and REITs, the Fund is largely insulated from more tariff-targeted manufacturing industries, such as steel, aluminium, autos, and lumber. Similar to President Trump's first term, we believe rational economic interests will prevail and the USMCA trade agreement will ultimately be renegotiated with minimal impact on Canadian equities. The U.S. represents over 75 per cent of Canadian exports and is an extremely important end-market for these sectors. US, Canada, and Mexico share over $1.5 trillion in annual trade, supporting 17+ million jobs across the three economies. This trilateral trade flow is one of the largest in the world, underscoring the significance of the USMCA agreement in maintaining economic stability in North America. Given this deep integration, renegotiations will likely aim to preserve trade stability rather than disrupt it.
The Canadian federal election which has been called for 28 April 2025, will be a key event to watch with potential positive implications for economic policy, trade, and capital markets. A Canada-first mentality is gaining traction, emphasizing deregulation, pro-business policies, and strengthening domestic industries. A more conservative, business-friendly government could lead to increased investment in key sectors such as energy infrastructure, along with streamlined regulatory processes to encourage economic growth. In addition, diversifying trade partnerships beyond the US could present significant opportunities for Canadian pipeline and energy companies. These developments could also lead to increased foreign investment in Canada, strengthening the Canadian dollar. However, trade policy negotiations will bring uncertainty in the markets, particularly if US protectionist policies weigh on exports.
Our base assumption remains that Canadian inflation will continue trending lower throughout 2025, supported by slowing immigration, easing supply chain pressures, and a more accommodative monetary policy stance from central banks. Over the past year, both the BoC and the Fed have seen meaningful progress in reducing inflation which has prompted rate cuts. However, deregulation, increased fiscal spending, and tax relief in the US could reintroduce inflationary pressures by stimulating aggregate demand, business investment, and consumer spending. While these policies are beneficial for long-term growth, they could delay or slow the pace of rate cuts if inflation proves to be stickier than expected. The balance between continued disinflation and the potential for reaccelerating inflation will be a key theme for policymakers in the year ahead.
We remain constructive on the Canadian real estate sector in 2025. Although there was a strong rally in REIT unit prices during Q3, we saw a reversal after 10-year yields began climbing again. Investor sentiment for the broader real estate sector is inflecting and we are now seeing foreign buyers of Canadian REITs after a prolonged disconnect between fundamentals and valuations. With bond yields declining and central banks cutting rates further, we believe certain REITs are extremely well-positioned to outperform. Canadian REITs continue trading at an approximate 25 per cent discount to NAV.
We expect quality REITs that generate stable and growing cash flows to narrow this discount throughout 2025. For these reasons, real estate remains the Fund's largest active sector weight relative to the Benchmark. The Fund's core real estate exposure areas include necessity-based retail, apartments, industrial, and seniors housing.
Energy was among the Fund's biggest contributors to performance in 2024 and remains a high-conviction investment theme for 2025. Energy represents 22 per cent of the portfolio, which outweighs the benchmark by 7.4 per cent. As geopolitical tensions mount, energy security has become a paramount issue for many countries. Canada's oil and natural gas reserves rank in the top five globally, positioning the Canadian energy sector for consistent growth for decades. The recently completed Trans Mountain Expansion project will help unlock this growth potential by increasing capacity for crude oil transportation by an additional 590,000 barrels per day. In addition, LNG Canada, the largest private infrastructure project in Canada's history, will become operational later this year. With an export capacity of 1.8 Bcf/d, LNG Canada will provide Canadian gas producers with a material boost to production egress. These large infrastructure projects are expected to stimulate significant investments from energy producers as well as midstream companies that will need to add necessary processing and handling capabilities.
Financials represented 28 per cent of the Fund and remained the largest sector exposure in 2024. The decision stemmed from our growing confidence in the economic landscape both in Canada and the U.S, increasing corporate and investor sentiment as well as a pickup in capital markets activity. As the Bank of Canada began cutting rates mid-2024, Canadian banks rallied in Q3 after posting solid earnings results and improved sentiment. The banks remain well capitalised above regulatory minimums and are now strategically deploying capital to support organic growth. Credit concerns have been abating as we are past the peak in provisions for credit losses. The banks have prudently been building their capital reserves to ensure they remain well-equipped in the event of widespread credit defaults. With bond yields having fallen approximately 80 basis points from their April 2024 peak, and strengthening underwriting standards, we have become less concerned by this risk but continue to monitor credit quality closely. The Fund has been diversifying its exposure to financials by adding insurance companies and asset managers to the portfolio. These positions will expose the Fund to different revenue streams and geographies. Our highest weighted names remain Bank of Montreal, Royal Bank of Canada, and CIBC, all of which have well-capitalised balance sheets and fully covered dividends.
The Fund had 9.5 per cent of the portfolio allocated to utilities at the end of 2024, below the Benchmark weight of 13.8 per cent. This underweight positioning was additive to performance. Despite its traditionally defensive characteristics, the sector lagged the TSX last year by 9.6 percentage points, with a total return of 8.6 per cent (local currency). Independent power producers did most of the heavy lifting, while regulated utilities and renewables significantly lagged. We expect the rest of the sector to re-rate over time as interest rates decline. The surging demand for electricity to power new data centres is a positive trend and we remain bullish on the sector's long-term growth prospects. Our preferred picks in the sector include AltaGas, Capital Power, and Brookfield Renewables.
Top Holdings
Top Holdings as at 31 December 2024
| Company | Sector | % of Equities |
| Tourmaline Oil Tourmaline is Canada's largest natural gas producer and one of North America's top suppliers of low-cost energy. The company operates high quality assets in the Montney and Deep Basin formations, leveraging its scale and strong balance sheet to maintain industry leadership. Tourmaline has also built a solid track record of dividend growth while paying out frequent special dividends over the last few years driven by their strong cash flow generation and commitment to growing shareholder returns. | Energy | 4.8% |
| Enbridge Inc. Enbridge is one of the largest energy infrastructure companies in North America with an extensive delivery network of crude oil, natural gas, natural gas liquids and renewable energy. The company also provides gas utility services in Ontario, Quebec, and New Brunswick. It is actively investing in low carbon technologies such as solar, wind and hydroelectric power generation facilities. Enbridge's goal is to achieve net-zero emissions by 2050 and reduce its greenhouse gas emissions by 30% by 2025. | Pipelines | 4.7% |
| Bank of Montreal Bank of Montreal, which was founded in 1817, has grown to be Canada's fourth largest bank. For over two centuries, BMO has maintained a consistent record of dividend payments. It has a well-established commercial banking business that it plans to grow through new product offerings and superior customer experience. BMO conducts its business in the US through its subsidiary, BMO Harris Bank which has over 500 branches. | Financials | 3.9% |
| Canadian Natural Resource Ltd. Canadian Natural Resource is one of the largest independent producers of oil and natural gas in Canada. The company is focused on maximising shareholder value through a combination of organic growth initiatives, dividend payments and share buybacks. It has grown its dividend by approximately 23% per annum over the past 5 years and has never cut its dividend. | Energy | 3.8% |
| Royal Bank of Canada Established in 1864, RBC stands as Canada's largest bank by market capitalization. With a robust presence globally, RBC excels in providing diverse financial products and services through branches, ATMs, and cutting-edge online platforms. Renowned for its customer-centric approach, RBC's strategic focus on the Capital Markets division enhances its standing, making the bank a key player in international finance. | Financials | 3.7% |
| TC Energy TC Energy is a leading North American energy infrastructure company, operating natural gas, liquids pipelines, and power generation assets. It owns and operates over 93,300 km of natural gas pipelines across Canada, the U.S, and Mexico, supplying ~25% of North America's natural gas demand. In addition, it operates power generation assets, including nuclear and renewable energy, contributing to a diversified portfolio. The company generates revenue through long-term take-or-pay contracted agreements which provide stable cash flows with minimal commodity price exposure. | Pipelines | 3.5% |
CIBC CIBC is one of Canada's Big Six banks, providing a range of personal, business, and institutional banking services. The bank operates across four key segments, including Personal Banking, Commercial Banking & Wealth Management, as well as Capital Markets. The bank boasts a significant presence in Canada and U.S banking, with a growing U.S commercial lending business. | Financials | 3.4% |
| AGF Management AGF Management is a global asset management firm, providing investment solutions across mutual funds, ETFs, and alternative investments. In recent years, it has expanded into private credit and alternatives, positioning itself for higher-margin growth. As funds flow out of savings accounts and back into equity markets post-rate cutting cycle, the active asset management industry will face meaningful tailwinds. | Financials | 3.4% |
| Manulife Financial Founded in 1887, Manulife Financial is a leading insurance provider in Canada's financial sector. Offering a comprehensive range of financial solutions, the company operates through a widespread network and digital platforms. With a focus on insurance, wealth management, and investments, Manulife's commitment to innovation and customer satisfaction cements its prominent position in the global financial landscape. | Financials | 3.4% |
| Pembina Pipelines Corp. Pembina is a well-established and reputable transportation and midstream service provider with over 65 years of operational history. Its assets are diversified across the hydrocarbon value chain, including pipelines, gathering & processing, and NGL midstream operations in Canada and the US. The company is actively investing in low-carbon and sustainability solutions such as carbon capture and storage to offset greenhouse gas emissions. | Pipelines | 3.1% |
Global markets face heightened uncertainty, driven by elevated geopolitical risks, shifting monetary policy, and trade tensions. Despite these challenges, Canada remains well-positioned for outperformance in 2025, underpinned by attractive valuations, strong fundamentals, and structural tailwinds in key sectors, including energy, real estate, and financials. The TSX Composite continues to trade at a 7 turns discount to the S&P 500, representing an attractive entry point for investors seeking dividend growth, capital discipline and resilient earnings.
While trade policies remain unpredictable, the Fund is well-diversified across resilient, high-quality, service-based sectors that are less exposed to tariffs. Canada is benefitting from deregulation, a more pro-business environment, and a shift in fund flows towards value and cyclical sectors as markets continue to broaden. The AI-driven expansion will require vast energy infrastructure to support data centre growth, creating significant opportunities for pipeline and utility companies - sectors where the Fund has substantial exposure.
Canadian corporations continue to prioritize shareholder returns, with record dividend payouts and share buybacks, a trend that is expected to persist. The Fund remains focused on high-quality companies with strong free cash flow generation and ability to grow their dividends. MCT's portfolio emphasises high dividend paying stocks which have a long track record of consistently increasing dividends. Over the past five years, dividends received by the Fund on its portfolio have increased by 8.2 per cent per annum, exceeding the 7.5 per cent per annum growth rate for the Benchmark.
Middlefield Limited
Date 24 March 2025
ESG
Environment, Social and Governance ("ESG”) Policy and Stewardship Principles: ESG Policy
As Investment Manager, Middlefield Limited ("Middlefield”) has a duty to maximise investment returns for the shareholders of the Fund without undue risk of loss. Middlefield does this within the investment limits of the Fund's investment mandate. Although the Fund is not an ESG-focused or sustainable fund, Middlefield incorporates ESG considerations into its investment process to aid decision making, identify potential risks and opportunities and to enhance long-term, risk-adjusted returns. Stephen Erlichman, one of the foremost experts on governance in Canada, serves as Chair, ESG for Middlefield to augment its ESG capabilities and processes.
It is Middlefield's responsibility to employ a disciplined investment process that seeks to identify attractive investment opportunities and evaluate material risks that could impact portfolio returns. Middlefield believes that ESG factors have become an important component of a thorough investment analysis and that the integration of ESG factors will result in a more comprehensive understanding of a company's strategy, culture and sustainability. Consistent with these objectives, Middlefield integrates ESG considerations into its investment process and these considerations are significant factors in selecting portfolio companies for its ESG-focused mandates. Our current ESG integration pr