Page 31 - DIY Investor Magazine | Issue 34

‘IN THE CURRENT CIRCUMSTANCES CANADA-FOCUSED TRUSTS LIKE MCT MAY MAKE FOR A VERY INTERESTING OPTION’
The portfolio is currently overweight to energy and utilities companies, both of which support the trust’s income objectives but also look able to take advantage of rising commodities prices and manage the effects of inflation.
The trust also has a large exposure to financials, which made up close to 25% of the portfolio at the end of March. For instance, TD Bank, Bank of Nova Scotia, and Bank of Montreal were among the five largest holdings at the end of March.
One of the added benefits of holding many of the companies in the portfolio is that they do a huge amount of business in the US. TD Bank, for example, is currently the sixth-largest bank operating in Canada’s southern neighbour.
But even as they take advantage of the world’s largest economy, Canadian stocks tend to trade at substantially cheaper valuations than their US peers. Investors thus get exposure to the US, without having to pay US prices.
Again, this is not a guarantee of success. There are never any silver bullets when it comes to investing and what may be the optimal decision today might not seem like it tomorrow.
Still, in the current circumstances Canada-focused trusts like MCT may make for a very interesting option.
View the latest research note on NCT here >
Disclaimer
Disclosure – Non-Independent Marketing Communication This is a non-independent marketing communication commissioned by Middlefield Canadian Income.
The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Looking forward, a couple of other tailwinds may work in MCT’s favour. One is that the Canadian economy has been slower to open up in the wake of the pandemic.
Vaccine distribution took longer than in other countries, like the US or UK, which meant the economy experienced less of an economic bounce back.
That does look to be on the cards, as the country has seen close to 12 consecutive months of growth in its gross domestic product. Along with a potential boost via higher energy prices, it seems plausible this will give a lift to MCT.
Despite these positive tailwinds, the trust continues to trade at a wide discount to its net asset value.
This stood at just over 12% in mid-May, after tightening from a low of close to 25% in February.
This may still prove an attractive entry point for prospective investors, with the potential for additional capital growth if the discount tightens, alongside any produced by the trust’s underlying portfolio.
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DIY Investor Magazine · July 2022