FEBRUARY PORTFOLIO UPDATE

MIDDLEFIELD CANADIAN INCOME PCC (LON:MCT)

All information is at 28 February 2021 and unaudited

¹ Based on four quarterly interim dividends of 1.275p per share paid 31 January 2020, 30 April 2020, 31 July 2020, 30 October 2020, and based on the share price as at close of business on 31 December 2020.

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 2019.

Performance with Net Income Reinvested

Source: Middlefield, Bloomberg.

Dean Orrico, representing the Investment Manager, noted:

Global equities rebounded in February with the MSCI World, the S&P 500 and the TSX rising 0.9%, 1.1% and 3.3% in British Pounds, respectively, while the Fund's net asset value generated a total return of 2.3% during the month.

A total of four vaccines have now been approved in Canada following recent authorizations of vaccines from Johnson & Johnson and AstraZeneca/Oxford. In response, the Province of Ontario accelerated its timeline by announcing that all willing citizens will be eligible for at least one dose by June 2021. President Biden has also announced that the US will have enough vaccine doses for every adult American by the end of May, which is two months earlier than previously anticipated.

The House of Representatives passed President Biden's US$1.9 trillion coronavirus relief bill, which includes extra unemployment benefits, rental assistance and direct payments to citizens. The Administration is also aiming to pass a much larger "recovery" stimulus bill later this year, which should include a significant commitment to sustainable infrastructure projects. We expect these early successes of the newly formed US government to provide broad support for the economy and equities in general. 

Interest rates on longer-dated government bonds have moved higher recently with the U.S. 10-Year Treasury Yield now over 1.5%. This caused a market-wide rotation out of growth stocks into cyclical and value equities, highlighted by a 10% correction on the NASDAQ between 16 February 2021 and 4 March 2021. As mentioned above, the Fund generated a total return of 2.3% last month, representing an effective diversifier for investors with exposure to elevated valuations in growth equities.

Financials, the Fund's largest sector weighting, was the biggest contributor to the Fund's performance in February. Canada's Big-6 banks outperformed EPS estimates by an average of 26% in fiscal Q1, supported by aggregate credit losses coming in 55% below consensus forecasts. We believe further reversals on credit loss provisions are likely as vaccines roll out and the economy reopens. Moreover, if long-dated interest rates continue their upward trajectory, net interest margins for bank lending books are set to expand. TD Bank, the Fund's third largest holding, has larger retail operations relative to its peers' at about 90% of income and is the most sensitive to shifts in interest rates and improving consumer credit metrics.

Real Estate also performed well during the month with Canadian REITs returning 4.9%. Retail REITs were particularly strong, highlighted by SmartCentres and RioCan (both top 10 holdings) which returned 12.4% and 11.8%, respectively. We believe the performance from retail REITs this month provides further evidence of the economic recovery gaining traction.

Utilities lagged in February, with the Canadian Utilities sector declining by more than 5%. Rising interest rates, together with the broad rotation out of growth stocks negatively impacted renewables companies. Notwithstanding this pullback, our conviction to Utilities remains high and we view these corrections as attractive buying opportunities.

The Fund's overall asset allocation has a pro-cyclical tilt with an estimated 60-65% allocation to cyclically-oriented sectors. Given the backdrop of a better-than-expected vaccine rollout, supportive fiscal policy and a rising interest rate environment, we believe the positive performance from the Fund's current portfolio positioning over the last several months has significant runway.

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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