Shane Obata, portfolio manager at Middlefield Capital Corp. in Toronto.The Globe and Mail
Money manager Shane Obata doesn’t see a recession on the horizon and believes the current interest-rate-cutting cycle will be a boon for the companies he likes to invest in.
“We’re trying to find companies with sustainable competitive advantages,” says Mr. Obata, a portfolio manager at Middlefield Capital Corp. in Toronto.
His investment criteria include companies that design products with “high complexity,” creating barriers to entry for competitors, have large distribution networks, and invest in research and development to stay ahead of their industry peers.
“We’re an equity income manager, so dividend growth is also important,” says Mr. Obata, who oversees about $460-million of his firm’s more than $2.5-billion in assets under management (AUM), which includes exchange-traded funds, mutual funds and flow-through limited partnerships.
Middlefield Sustainable Global Dividend ETF MDIV-T – one of four strategies Mr. Obata manages – has returned 35.3 per cent so far this year and 50.1 per cent over the past 12 months, as of Oct. 21. The fund’s three-year annualized return was 13.7 per cent, and its five-year annualized return was 13 per cent as of Oct. 21. The performance data are based on total returns, net of fees.
The Globe spoke with Mr. Obata recently about what he’s been buying and selling.
Name three stocks you own and would recommend for new clients.
Broadcom Ltd. AVGO-Q, which makes a broad range of semiconductor devices, is a stock we first bought in July, 2019 at about US$30. It’s one of our core positions. We continue to have a high conviction in Broadcom. We stick with our winners, assuming there’s no change in the thesis or the valuation doesn’t get too crazy.
The market likes recurring revenue, so as Broadcom has built out its software division steadily, it has been rewarded with a higher multiple. It also has a blossoming artificial intelligence division. AI wasn’t the main reason we got into this company five years ago, but it has done better than anyone expected. Broadcom develops custom AI chips with partners such as Google. It also provides high-speed networking gear. Both of these are important pieces of the AI puzzle. Although the company’s earnings multiples have expanded, we continue to see value in it.
Blackstone Inc. BX-N, one of the largest global alternative investment managers, is a stock we’ve owned since July, 2021. We first bought it at around US$98 a share. It’s also one of our core positions. Blackstone has a record AUM of US$1.1-trillion. Because of its scale, it has access to the biggest deals that only a few players can access. It also has huge distribution advantages through its global salesforce.
Blackstone’s credit business is particularly strong right now. It’s the company’s biggest segment by AUM at about US$355-billion. The company has faced challenges in its real estate segment, but it’s turning the corner. The company said in its most recent earnings call that its commercial real estate market is continuing to recover and that lower borrowing costs – and an improved backdrop for deal-making – should also help. We like the outlook for this company.
Prysmian S.p.A. PRYMF, a Milan, Italy-based company specializing in electrical cables for the energy and telecommunications sectors, is a stock we bought in October, 2022 for around 81 euros a share. We own it on the Milan Stock Exchange, now called the Borsa Italiana.
While Prysmian is a lesser-known name, it’s a large global company with plants in North America, Europe, Latin America, the Middle East and the Asia-Pacific. Most notably, the company manufactures high-voltage cables used to transfer electricity hundreds of kilometres under the sea. These cables connect generation assets to the grid and connect countries to each other, which in turn increases energy resiliency. I wouldn’t say the stock is cheap these days, but it does trade at a discount to some of its more well-known industry peers.
Name a stock you’ve sold recently.
T-Mobile US Inc. TMUS-Q, the U.S. national wireless service provider, is a stock we sold at the end of May. We were up 23 per cent at that point and felt there were better opportunities in the communications sector outside of telecom. In hindsight, it was a mistake to sell it when we did because the stock price has increased. It’s a name we’ll continue to follow and will likely revisit on any significant correction.
This interview has been edited and condensed.