|"The Coalition of Canadian Energy Trusts makes the claim that they pay more taxes per dollar of revenue than non-trust energy companies. Nevertheless, they love being trusts. In fact, they love being trusts so much they are screaming mad that Flaherty is going to make them pay less tax. Yes, that's right. They must convert back to regular corporations over the next few years, and presumably--according to their own research, anyway--will end up paying much less tax. How dare you, Mr. Flaherty!"
|It's too early to throw in the towel on trusts
|"The income trust market is incredibly vulnerable right now and any news development that suggests a bleak future is going to make things worse. Still, veteran money manager Rick Howson says there's an argument to be made that trusts have been wrung out as much as they deserve to be in light of the new trust tax. Mr. Howson, manager since 1997 of the Saxon High Income Fund, said the new tax essentially will treat trusts just like a corporation, whereas trusts now have an advantage in that they pay no corporate tax. Previously, trusts were considered more valuable because they had this tax benefit. Now that the benefit is on the way out, trusts and corporations deserve to be valued similarly. In Mr. Howson's estimation, this is exactly what the markets did to trusts this week -- pull them down in price to put them on par with corporations. "I would say that if we look at income trusts as a group, the bulk of the damage has been done in terms of price declines," he said. "Trusts are now reasonably priced compared with comparable companies, as a group." Does that mean trusts are a buy right now? Mr. Howson warned that there could be still more adjustment ahead for trusts as details emerge on what shape they'll take after 2011. Despite this uncertainty, it can be argued that some trusts will continue to be attractive investments."
|Trust tax plan
|"The measures in the Tax Fairness Plan include: * A Distribution Tax on distributions from publicly traded income trusts and limited partnerships. * A reduction in the general corporate income tax rate of one-half percentage point as of January 1, 2011. * An increase in the Age Credit Amount by $1000 from $4,066 to $5,066 effective January 1, 2006. This will benefit low and middle-income seniors. * A major positive change in tax policy for pensioners. The government will permit income splitting for pensioners beginning in 2007."
|This is going to be ugly
|"Trusts are found in mutual funds, pension funds, individual investment accounts and registered retirement accounts. All kinds of investors are going to be hurt, and the pain will be unavoidable as the stock markets adjust to the uncertain new future for trusts. Better brace yourself."
|The rise of the income trust
|"Until this week, in fact, when Mr. Sabia announced the creation of Canada's largest income trust, the company had argued that the telecom business was changing too rapidly for management to adopt such an inflexible business structure. But the straitjacket, for many, explains much of the appeal of the almighty trust. What started as a way for small companies to cut their tax bills has become something else - a tool for shareholders to reclaim some of the discretion that once belonged almost exclusively to CEOs and directors, and at the same time address one of their deepest concerns: a lack of faith in corporate executives to spend their excess cash wisely."
|A history of neglect
|"If the Spanish philosopher George Santayana had been a Canadian, his oft-quoted aphorism about history might have read: Those who cannot remember the past are condemned to exceed it. Certainly, this is the case when it comes to investor protection. Unlike the U.S., Canada has actually managed to systematically erode the integrity of its capital markets."
|Pyramid income trust
|"I'm offering you a guaranteed opportunity to make a fortune. You can get in on the ground floor of an investment idea that has been so thoroughly researched I'm tempted to use the words "sure thing." I need you to give me money so that I can buy a business. The type of company is irrelevant; I'll just grab the first thing that comes along. Profitable or unprofitable, it just doesn't matter. I'm going to cook the books anyway. We're just in for a quick flip. With a little magic, we can sell it for three times what we paid."
|Teachers calls for consistency in trust rights
|"In some cases, Ms. Jackson said, sections of trust declarations are copied verbatim from the CBCA, but key pieces are simply omitted. Some omissions relate to legal remedies available to disgruntled unitholders, while others relate to disclosure obligations of the trust."
|Income trust checkup
|"The number of trusts that have either suspended or cut their distributions continues to rise."
|FMF and 'predictable results' a cautionary tale
|"FMF, for those who managed to sidestep the shrapnel and don't know the company, is in the mortgage-origination business. It sounds very safe and boring, but in the U.S., it's not. FMF's business model is to find people who need money to buy a home, then sell those loans to other investors at a profit, usually within 35 days. Most of its business is so-called "sub-prime" mortgages -- generally, borrowers with poorer credit. It operates in 38 states. Naturally, then, when it came time to go public, FMF looked to the Toronto Stock Exchange as the best place. FMF may not have any executives, customers or offices here, but it is based in Southfield, Mich., and isn't Michigan right on the border with Canada? You can see the logic. What our country does have is a group of yield-crazed investors and investment banks willing to cater to them. So out the door went FMF units, promising an 11-per-cent yield that was as solid as Jell-O."
|Bay St.'s rich secret: churning income trust funds
|"Some day, investors will realize that they will get richer if they avoid turning over their trust investments every year. You don't churn your mutual funds because you don't want to pay the fees, so why would you churn your trust funds? Avoid it and you'll save the agent's fee year after year. Add it all up and you're talking real money. Churning your trust fund is even more ridiculous when you realize that the new fund you bought at the end of the year might look pretty much like the one you just sold."
|When a trust, by any other name, is just a stock
|"Leslie Lundquist owes her fame in money management circles to income trusts. As the lead manager of two income funds for Calgary's Bissett Investment Management, being a doomsayer on the trust market isn't her shtick. So perhaps when she admits to getting nervous, we should pay attention. And Ms. Lundquist is skittish on the latest crop of trusts -- not because they're bad companies, but because "there's no conceivable reason why they should be trusts instead of stocks.""
|Put stock in trusts, or trust in stocks?
|"First, there are oil and gas royalty trusts. They're trendy, they're pleasant to own because of their generous payouts of cash every month or quarter and they've shown some serious horsepower in the past few years. Crashworthiness is uncertain, however. If oil prices were to plunge, these babies could do some damage."
|In Trustville, faithful truck in optimism
|"When the income trust bonanza began, its sponsors -- namely, the big bank-owned brokerage houses, led by CIBC World Markets -- described it as the perfect vehicle for boring, stable businesses. My, have things changed. Anything goes now, including highly cyclical companies that will struggle to pay for postage stamps, never mind paying distributions, when the good times end."
|The trust dilemma: Is it time to buy?
|"The second annual spring correction in the income trust sector is under way, but the price markdowns are nothing to get excited about unless you're open to some contrarian thinking."
|Running with the trust zombies
|"I remember when investing in income trusts was so much fun. There were only a limited number of names, so the sector was easy to follow. It was like remembering the names of Canadian sitcoms. Few people cared about income product, so you never felt like a victim of the herd mentality. Around the same time, a friend of mine had a financial advisor loading her up with biotech and semiconductor plays and he dismissed trusts as quickly as an invitation to a leprosy festival. Trusts were deemed to be a retail investor thing, not suitable for "real" investors who knew what they were doing. Meanwhile, all I had to do was stay invested, sit back and make money. It was a wonderfully intimate party and the gains were comfortably-paced. Unfortunately, the party has since been crashed by investors of virtually every stripe. And these party-crashers have an insatiable appetite. They want yield product and they want it bad. They'll devour just about anything, even if it's crap. Call them trust zombies. This has led to valuations becoming strained, especially among the larger trusts, making it harder to find true value."
|Greed fuelling energy trusts' inevitable meltdown
|"When the energy trust sector finally blows up -- and it will -- there's going to be plenty of blame to go around."
|Investors and advisers stick up for income trusts
|"The great thing about writing columns on the question of whether income trusts are alarmingly overvalued is that you never have to resort to writerly hyperbole to keep things on the boil."
|Getting a fix on broken trusts
|"Valuations are so high that many of these trusts are likely to get slaughtered once interest rates move up. And rates will go up eventually. What's a trust investor to do?"
|Income trust myopia could be a dangerous thing
|"An epidemic of self-destructive performance chasing has broken out among mutual fund investors. They're selling equity funds, notably global funds, and moving into income-oriented funds that hold dividend stocks, bonds and, of course, those ever-enticing income trusts."
|First families, second marriages
|"If you're in a second marriage and you want your kids from your first marriage to eventually inherit what you leave behind, you had better plan for this to happen."
|Direction of distributions creates two classes
|"It's also a lesson in the new hazards of being a trust investor. Income trusts were originally created as an investment vehicle for nice, stable businesses to pay nice, stable dividends to blue-rinse grannies who wanted monthly income with no headaches. Three years after the boom in business trust IPOs began, a new pattern has emerged. There's a stratification of the market: lots of little winners, and a growing bunch of very big losers. Avoiding the junk has become critical to your portfolio's health."
|Stability ratings help spot bad tomatoes
|"It was Attack of the Killer Tomatoes week in the income trust world. The fun began on Tuesday when Hot House Growers Income Fund announced that an unprecedented drop in tomato prices has forced it to suspend its monthly distribution. In the ensuing carnage, Hot House units lost 43 per cent of their value."
|Income trust investors to be sheltered from liability
|"The Ontario government is moving to make it legally clear that investors in publicly traded income trusts cannot be held liable for the activities of the trusts."
|Ottawa suspends restrictions on income trusts
|"Minister of Finance Ralph Goodale today announced that the Budget 2004 proposals to limit investment by pension funds in business income trusts will be suspended to allow for further consultations. The measures were originally proposed to take effect January 1, 2005."
|Even a small interest rate rise will take shine off REITs
|"It's not that the real estate trusts are doing anything wrong; but neither are they doing as much right as their astounding stock charts would suggest. Their market success has been driven by interest rates, making U.S. Federal Reserve Board chairman Alan Greenspan the hero of the sector. Getting an 8.8 per cent return from Summit looks decent against guaranteed investment certificate returns that you need a microscope to see."
|Ottawa's trust moves are slick and subtle
|"Income trusts have been saved from the taxman's clutches, but at a subtle price that investors will pay without even knowing it. After needlessly spinning investors with ambiguous signals about its intentions toward trusts, the Finance Department said yesterday that it will drastically limit the ability of pension funds to participate in a big portion of the trust market."
|'Warning shot' on trusts set for budget
|"Ottawa will include "a warning shot" to investors on budget day next week, signalling that the federal government is concerned about the tax treatment of the hot income trust market and is seriously contemplating changes in the future, federal sources say."
|Ottawa should put brakes on taxing trusts
|"Given the likelihood of a spring election, the smart play would be for the government to do nothing on trusts and pick up the file again later on. A backlash from seniors struggling with low interest rates is the last thing the federal Liberals need on the campaign trail. Procrastinating on trusts may yield another benefit. By the time the government gets around to this issue, it may not be an issue any more."
|Ottawa mulls tax changes for trusts
|"The federal Finance Department is holding top-level talks and conducting secretive private sector consultations to decide whether it should clamp down on the tax treatment of income trusts in the March 23 budget."
|Use incentive trusts to reward, not punish
|"When it comes to your estate, planning ahead is critical. Today, I want to talk about an estate tool worth considering. I'm referring to testamentary incentive trusts."
|Is the party over for income trusts?
|"A little over a week ago, mutual fund manager Ben Cheng addressed an audience of 40 or 50 investors who gave him a startling insight into how retail investors view income trusts. "I asked how many of them had an income trust in their portfolio, and all their hands go up," Mr. Cheng recalls. "And then I said, how many people in this room have more than 50 per cent of their investable assets in income trusts? More than half of the hands go up. "That scares the hell out of me," says Mr. Cheng, who manages an income trust fund -- CI Signature High Income. "At the end of the day, it looks like retail investors have jumped again with both feet into an asset class thinking that it's invulnerable and it goes up forever. I don't think that's the case.""
|Income trusts are not created equal
|"Ask any investment dealer -- income trusts have been the only game in town in the past couple of years. That's not surprising, given their generous distributions, the steady price appreciation in the group as a whole and some pretty impressive tax breaks to boot. But don't walk away thinking all income trusts offer juicy tax-efficient cash flow. They don't."
|Income trusts can dabble in chicanery
|"A more direct approach to polishing the numbers is needed. And so investors must thank Atlas Cold Storage Income Trust for reminding us that shoddy accounting and anemic governance aren't restricted to ordinary common stock companies."
|Management fees an eye-opener
|"With compensation out of line, trusts will find it hard to gain credibility."
|A matter of trust
|"The Globe and Mail's extensive investigation of income funds reveals a shaky world of investments, where companies tap their bank credit lines to maintain distributions, external managers continue to reap great rewards from lucrative contracts, business structures can be best described as inscrutable and the tight focus of single-industry trusts is proving to be their downfall."
|Cleanup costs can take the shine off oil trusts
|"Income trust investors are a sensitive lot, objecting frequently and loudly to bad press about their investments. To escape their ire, let's preface this look at the oil trusts with the good."
|"In today's low interest rate environment, income trusts are being sold to risk-averse investors who are shying away from low-yielding GICs. Many of the recent issues have been of volatile businesses that are unsuited to the income trust structure. So once again there is a mismatch between the risk preferences of the investing public and the innate characteristics of many income trust investments."
|Halterm Income Fund provides a cautionary tale
|"Finally, there's a bogeyman to scare some common sense into the people who have flocked to income funds. As in, be careful which income funds you buy, eager investors, or you may end up with a Halterm Income Fund."
|Income trusts may soon get the respect they deserve
|"Part of the problem for trusts, more correctly known as income funds, is the unlimited liability issue. Many people in the income fund sector dismiss the risk of unlimited liability, but institutional investors have shied away from these securities because of a technical possibility they could be held liable should a trust go bankrupt or be involved in a costly lawsuit. Both the Ontario and Alberta governments have been asked to introduce legislation that would limit unitholder liability in a way that would put income funds on the same level as common shares of a publicly traded corporation. An Ontario Finance Ministry spokeswoman said that if Ontario makes the move, it will be in the budget that provincial Finance Minister Janet Ecker is to deliver by the end of this month."
|Look at trust's quality before swapping units
|"Do you want to pay for Sentry Select's managerial expertise (this firm is a serious player, so no worries there), or do you want to continue to go it alone?"
|S&P analysts see trouble ahead for some trusts
|"Analysts at Standard & Poor's Corp. have issued a warning to investors who buy lower-quality income trusts. We're talking here about trusts offering yields in the low to mid-teens or more, which are spectacularly high if you've looked recently at the annual interest payouts available from bonds and guaranteed investment certificates."
|Income trusts need all the help they can get
|"Ontario has been asked to give income trusts a level of legitimacy they've been unable to attain despite three years of stellar returns. While retail investors have embraced trusts, institutional players like pension funds have shunned them out of concern that unit holders could be held liable in case of bankruptcy or a catastrophic lawsuit."
|Income trusts still enjoying the ride
|"The trust phenomenon goes back to the mid-1990s, when a few large and innovative initial public offerings came to market from the mining and energy sectors. The concept caught fire, and the number of deals spread across the business landscape."
|Want higher yield and lower taxes? Consider a REIT
|" To buy or not to buy: That is the question a lot of investors are asking about real estate investment trusts right now. The debate has mainly concerned the investment outlook for REITs after several strong years, but there's another factor to consider as well. It's taxation, an area where there's no doubt at all about the benefits of this type of investment."
|REITs are appealing, but is it the best time to buy?
|"There's a new and easy way to invest in real estate investment trusts, a segment of the stock market that has been outstandingly solid over the past year. This sounds like good news for retail investors, but is it? There are those who believe REITs are peaking in terms of their appeal and could head lower as the overall market rises."
|The differences between trusts
|"The problem is, if the in trust account has no terms for the trust, once a child reaches the age of 18, he or she is entitled to the funds. So it's a cheap way to set up an in-trust account, but there are downsides."
|Selling the downside
|"As you may have guessed from our opening feature, the prices being paid for some assets via income and royalty trusts have exceeded our wildest expectations, but have exhausted neither the imaginations of the corporate financiers of Bay Street, nor the credulity of the Canadian public. It has truly been a situation where, as Buffett says, those who don't know are buying from those who don't care. How have these price levels been reached?"
|Shakespeare on REITs
|"Finally, beware of the risk of reaching for yield: purchasing high-yield securities when interest rates are low. At the time of writing (spring 2002), with interest rates at record lows, the number of new trusts appearing is very high. A similar situation occurred in 1997, when again interest rates were low and a large number of new royalty trusts were issued. Unfortunately, as in 1997, many of the new trusts are likely to disappoint investors as Bay Street unloads assets that are unsuitable for income trusts because of variable cash flow or poor quality of the underlying assets."