Commodity ‘supercycle’ will sustain Middlefield Canadian for five years, says Orrico
29 June 2022
Fund manager Dean Orrico believes we are in a commodities supercycle that should sustain outperformance for his £124m Middlefield Canadian Income trust over the next five years.
He cited a forecast by Jeff Currie, global head of commodities at investment bank at Goldman Sachs, who predicted a 12-year boom across the energy, metals, mining and agriculture sectors, almost two years ago.
Following a 10-year period of strong growth stock performance as interest rates lowered, Orrico now believes the 40-year bull market in bonds has come to an end and a period of deglobalisation has begun, during which commodity prices will remain relatively strong.
‘A major factor driving the last commodity supercycle, which lasted 10-12 years, was the increase in China’s economic activity after it joined the World Trade Organisation in 2001. Will China have the same or even greater demand going forward as it looks like we’re in the early stages of deglobalisation?’ Orrico (pictured below) told Citywire.
Middlefield’s portfolio is split between 15% in oil pipelines, 15% in energy, including renewables, and 25% in both financials and real estate. Canada accounts for 95.9% of the portfolio, with the remainder in the US. Top holdings include Canadian Natural Resources, TD Bank and the Bank of Nova Scotia, which make up 13.9% of the portfolio.
Results released in April showed the closed-end fund outperformed for the fourth consecutive year, with a 38.8% growth in the portfolio beating the 27.4% rise in the benchmark.
The 25% real estate weighting provides a hedge against inflation, which stands at 6.5% in Canada currently.
Calling property the ‘single best equity income vehicle in the market’, Orrico is convinced by the strength of Canadian real estate investment trust (Reits) which have shown they can deliver good returns regardless of high or low inflation.
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