Q&A: Heavily into income trusts

Zoomer | January 1st, 2006

Question: My husband and I are 59. We have half of our investments in income trusts. Do you think this is a reasonably safe place to be? – D.T.

Gordon Pape’s answer: Frankly, no – at least not to the extent of 50 per cent of assets. Income trusts had a huge monkey removed from their backs when Finance Minister Ralph Goodale decided to abandon the idea to tax them just before the election was called. As a result, the sector rallied to all-time highs.

But these are stocks, not bonds, and as such they can be highly volatile. We are also seeing a growing number of trust collapses, such as FMF Mortgage which went from $10 to pennies in just a few months.

Rising interest rates in 2006 could put a damper on the trust sector which would lead to a price correction, so I advise caution. In my Balanced Model Portfolio, which is published in the Mutual Funds Update newsletter, I suggest an income trusts weighting of 12.5 per cent. You’re way above that level. Be careful.

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