National Post – When Derek Webb started a long/short Canadian hedge fund early in June, he said he would go long and short both Canadian stocks and income trusts.
Forensic accountant Al Rosen of Rosen & Associates in Toronto views the income trust sector as a house of cards due soon to fall. If this scenario pans out, managers such as Webb will be the first to profit on the short side, along with investors in those funds. The shakier trusts have already cut distributions and lost market value, but 2006 is shaping up as an interesting test of the asset class.
For one, the trusts have now reached full-strength representation on the S&P/TSX composite index. Less recognized is the fact Canadian trusts are showing up in global indexes and the funds that track them.
In The MoneyLetter, consultant David West views this as a “coming of age” for the sector. On May 31, Morgan Stanley added trusts to its MSCI Canadian Equity Universe index. “Being recognized at the international level is a big step toward legitimacy of income trusts,” West says, adding the move came after pressure from the Canadian investment community.
Among the trusts included in the MSCI World index are Canadian Oil Sands Trust (COSun/TSX), Yellow Pages Income Fund (YLOun/TSX) and Enerplus Resources Fund (ERFun/TSX). This suggests trusts may be bifurcating into two tiers — the big established ones in the indexes, and lesser known, riskier names that may end up as shorting candidates.
