U.S. Trusts Raise Eyebrows

Some brokers are quite excited about a recent trend in the income trust sector: U.S.-based entries. The combination of U.S. dollar cash flow and exposure to the broader American economy will appeal to many investors, they feel.

Two real estate trusts based on U.S. assets were recently announced. As well, there was a planned IPO for a Wisconsin-based coin laundry machine supplier, but it was postponed. More U.S.-based offerings are said to be in the pipeline.

Although this looks like the start of something much bigger, at least one highly-regarded income trust portfolio manager is skeptical. Paul Bloom, who runs the Citadel funds, said recently that he’s “a little nervous” about the U.S. entries into the Canadian marketplace for two reasons.

Taxes. Right now, these funds are not taxable in the States, according to their legal advisors. But Bloom is concerned that if this trend gains momentum, the U.S. Internal Revenue Service could take a closer look and change the rules of the game.

Business risk. Bloom feels the underlying trust assets will be much harder to monitor than if they were in Canada. “If a paper mill in Kapuskasing that’s part of a tru goes on strike, we’ll read about it in the paper,” he says. “But if the same thing should happen in a small town in Maryland, we probably won’t.”

Because of these worries, Bloom says his organization is demanding a higher yield on US-asset trusts. If they aren’t offering at least 1% more, he’s not interested, he says.