Middlefield Canadian Income Trust

JULY PORTFOLIO UPDATE

MIDDLEFIELD CANADIAN INCOME PCC (LON:MCT)

All information is at 31 July 2021 and unaudited

¹ Based on four quarterly interim dividends of 1.275p per share paid 30 October 2020, 29 January 2021, 30 April 2021, 30 July 2021, and based on the share price as at close of business on 30 July 2021.

² Ongoing charges represent the management fee and all other operating expenses excluding interest as a % of average shareholders' funds for the year ended 31 December 2020.

Performance with Net Income Reinvested

Source: Middlefield, Bloomberg.

Dean Orrico, representing the Investment Manager, noted:

Equity markets extended their impressive run in July with the S&P 500, MSCI World and TSX Composite returning 2.4%, 1.8% and 0.8%, respectively. The British Pound appreciated by 1.1% relative to the Canadian dollar, negatively impacting currency-adjusted returns for U.K. investors. The Fund's net asset value increased 0.5% and has outperformed the Benchmark by more than 2% year-to-date.

Historically strong corporate earnings supported equities this month, offsetting negative headlines which included a regulatory crackdown by the Chinese government on its tech sector and spiking COVID-19 cases. Of the 80% of S&P 500 constituents that have reported Q2 earnings thus far, 85% have topped projections by an average of 16%. Value stocks have delivered earnings growth of 107% on average as a result of margin improvement against a very challenging operating environment during the second quarter of last year. In Canada, 70% of TSX constituents have reported Q2 earnings with 67% of companies beating revenue estimates by an average of 19%. While a recovery in consumer spending is driving these outsized results, it is interesting to note that this increase in consumer spending is doing little to erode the excess savings built-up during lockdowns. In fact, households are still saving more than usual, albeit less so than in 2020. We believe this is, in part, due to the uncertainty surrounding the Delta variant and we expect consumer spending will increase as lockdown restrictions fade.

Global coronavirus cases are rising rapidly with the Delta variant accounting for the vast majority of infections. Canada is a leader among developed countries for double-shot COVID-19 vaccinations with more than 60% of its population fully vaccinated. Absent a more lethal variant, we are optimistic that hospitalizations and deaths will not inflect higher in the coming months, similar to what occurred in the U.K. throughout the month of June. New cases and hospitalizations are rising much faster in the United States where approximately half of its population is fully vaccinated. Even so, we think the likelihood of new widespread lockdowns in the U.S. is low and the situation is improving as policy makers turn their attention toward encouraging more people to get their shots.

The Fund increased its exposure to the Utilities sector this month from 14.9% to 17.2%. Specifically, it topped up positions in Brookfield Renewables, AltaGas and Northland Power. Utilities have returned 8% in Canada year-to-date, lagging the TSX by more than 10%. Recent underperformance has led to attractive valuations and compelling entry points for these companies as we believe the market is understating their future growth prospects. Click here to read more on Middlefield's outlook for the global clean power transition.  

Real Estate was the top contributor to performance this month, generating a weighted-average return of 4.3%. Industrial REITs were the strongest performing asset class, led by Dream Industrial returning 5.4%. Dream Industrial announced plans on 22 July to spin its U.S. assets into a private fund, retaining a 25% interest alongside a group of institutional investors. We view the announcement positively as it crystalizes attractive returns on the company's U.S. assets, reduces net leverage into the mid 30% range and allows the company to focus on its core Canadian and recently acquired European properties which represent 55% and 40% of Dream's pro-forma geographic mix, respectively.

WPT Industrial REIT, another core industrial holding, announced on 9 August it had entered into an arrangement agreement to be acquired by Blackstone for US$22 per share in a US$3.1 billion transaction. The offer price represents a 17% premium to its previous closing price and results in a total return of c. 88% since the position was added to the Fund in February 2019. For more information on the transaction, please click here.

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Notes to Editors

Middlefield Canadian Income PCC aims to provide long term returns through dividend income and capital growth from a diversified portfolio of predominantly Canadian equity income securities and US stocks. The Company has been listed since 2006 as London's only listed Canadian equity income fund.

For more information on the Company, please visit our website:

http://www.middlefield.co.uk/mcit.htm