Interested in energy trusts

Q –  I notice that the energy trusts pay out very handsome returns but the analysts rarely recommend  them.  Why is this? – T.J.

A – Energy trusts got a black eye during the oil price slump of 1998, when their market prices plummeted. Even with the resurgence in oil and gas prices, many of them are not back to their original issue price even now. This volatility soured investors, advisors, and analysts and led to a reluctance to recommend them.

That was unfortunate because 12-18 months ago these trusts went selling for bargain-basement prices. We recommended some in our Internet Wealth Builder newsletter (Pengrowth, Canadian Oil Sands, Freehold and PrimeWest), all of which have enjoyed big price gains in recent months.

Some brokerage houses follow these trusts quite closely, including RBC Dominion Securities, which has a full-time analyst working on them. He currently rates ARC Energy, NAL Oil and Gas, Pengrowth and Freehold as “Outperform”, the firm’s second-highest ranking (out of five). – G.P.