Meet the Manager: Income Investing, Active Management & Market Outlook with Dean Orrico

Transcript:

So, Middlefield has been around for over 45 years, and we’re a Canadian-based asset manager focused on income, historically equity income, and we’ve just launched a new fixed income platform. We really believe that income is a viable source of return for all types of investors, specifically on dividend-paying stocks. Josh, if you look at stocks that grow their dividends, and you look at the total returns from dividend growth stocks over 30, 40, 50 years, they tend to outperform non-dividend-paying stocks, they tend to outperform dividend stocks that pay a stable dividend.

So, over time, we think this is a really viable strategy for every type of investor. So, across all of our funds at Middlefield, about $3 billion in assets under management, we really approach it from a high conviction standpoint. What does that mean? We typically own 35 to 40 names.

Each company within that portfolio would be no less than 1% or more than 5%, typically. If they’re going to be above 5%, we typically start trimming those names to bring them back in, and that’s a good way to manage the risk in the portfolio. We look for liquidity, we look for companies that have the ability to grow their dividends over time, and we really get to know these management teams.

So, we typically meet them two to three times a year and have intimate knowledge so we can really drive positive returns through good stock selection and asset mix decisions. So, when people talk about North America, they really talk about the U.S. They really, historically, have focused very little on Canada, and I think that’s changing. There’s now a renewed focus on value and natural resources, which is what Canada does, and I think Canada does that as well as anybody.

The Canadian market is more concentrated, not unlike the U.K. market. We’ve got an abundance of natural resources. Canada is one of the largest producers of potash, gold, oil, natural gas, uranium, globally, and we do it responsibly.

Now, as a result of this development in AI, the need for natural gas for data centres, there is now more emphasis on this, and I think Europe’s come to realise that they can’t rely on natural gas from Russia anymore as a result of the war in Eastern Europe. So, again, Canada’s got 100-year-plus reserves of natural gas, and I think that’s really shaping people’s views on Canada. Over and above that, I believe we’ve got the most stable financial sector of anywhere, any country, globally.

We’ve got six banks, highest ROEs of any banking sector globally, very high capital ratios, so I think people are starting to appreciate the value represented, and that value is actually at a discount to what you might get in the U.S. Well, at the end of the day, good stock selection, especially from people who are on the ground in Canada, I think can drive superior returns. So, superior knowledge drives superior returns. Over time, we’ve done a good job in managing portfolios, exceeding our benchmarks virtually across all of our strategies, but we tend to be focused on specific areas where we can develop superior knowledge and drive superior returns, and I think that’s where active management can really lend a hand, and you don’t have to do active management at a high cost.

We try to keep our costs relatively low and try to deliver better returns as a result. As an income investor, specifically on equity income strategies, we look for companies that not only are paying a dividend, but we think have the potential to actually grow dividends. So that typically is one of the first filters we apply to our target universe.

Above and beyond that, we look for valuation, we look for businesses that have a moat, businesses that actually can grow their business with relatively less competition, and at the end of the day, it comes down to who are the people running the business. We try to get to know those management teams. As I alluded earlier, meeting them at least two to three times a year really gives us confidence and their ability to execute on their strategy.

Great question. I believe we’re in the very early stages of a broadening of markets. So we know for the better part of seven or eight years, the markets were all about growth, and you talk about the U.S. market, where about 50% of it is in technology, and there’s some great businesses there.

But I think what you saw in 2025 and what you’ve already started to see in 2026 is that investors are looking beyond just those growth stocks. So this broadening of the market I think really plays to who we are and what we do at Middlefield because we have exposure in our funds to companies that are trading at better valuations, that have just as good earnings growth as some of those other stocks that are in the S&P 500.  So I think that’s happening, and I think you’re going to continue to see some re-rating of those areas that really have been left behind during that period when everyone was just focused on technology and growth.