Life was so simple during the last bear market — income trusts were the trusty friend of retail investors and pretty much everything else was the enemy.
The markets have been wickedly volatile over the past 18 months or so, recalling the dark days of 2001-2002. Alas, income trusts have not reprised their role as the investor's saviour. A few trusts have stood up bravely against the latest market decline, but you have to work to find them.
Trusts look good on the surface, mind you. The S&P/TSX capped income trust index was off 4.1 per cent for the year through Sept. 19, while the S&P/TSX composite index dropped a nasty 13.7 per cent. But the trust returns are somewhat distorted by the dominance of energy trusts, which account for close to two-thirds of the capped income trust index. Energy, as well all know, has been one of the hotter sectors in the past year or so. Aside from Fording Canadian Coal Trust, all of the Top 10 year-to-date performers in the trust index were all energy trusts as of mid-September.
If you dig down a bit, though, you'll find some other trusts that fared well in falling markets and offer the potential of stable returns looking forward. Here are a few of them:
- CAP REIT (CAR.UN): Canadian Apartment Properties Real Estate Investment Trust owns apartment buildings and townhouses, which helps explain why it has avoided the sharp declines of other REITs. Residential properties offer stable revenues that should hold up better in an economic slowdown that a portfolio of office buildings or retail stores. CAP's unit price has been pretty much flat this year — that's good news — and the yield in mid-September was 6.7 per cent. That's more than double the return on a five-year Government of Canada bond.
- Inter PipeLine Fund (IPL.UN): This trust is involved in storing and transporting petroleum and natural gas products in Canada, the UK, Germany and Ireland. The unit price was down about 4 per cent this year, while the yield in mid-September was in the low 9 per cent range. Pipeline trusts like this one can be vulnerable in times of rising interest rates, but they offer a solid degree of distribution stability.
- Northland Power Income Fund (NPI.UN): Northland has an indirect stake in six power-generating projects in North America and Europe, including a pair of wind farms in Germany. Power-generating trusts operate under long-term supply contracts, which suggest reliable distributions. However, a couple of trusts in this sector have recently run into troubles that raise the question of whether they'll have to trim their cash payouts. Northland has been one of the steadiest names in the group lately and its year-to-date decline of just 1.4 per cent reflects this. The yield at 8.95 per cent is substantial.
- Cominar REIT (CUF.UN): This REIT is Quebec's largest owner and operator of commercial properties, including office and industrial buildings. The acquisition last year of another Quebec-focused REIT, Alexis Nihon, helped enable Cominar to raise its distribution last May and the yield these days has been around 7 per cent. With the unit price down just 1 per cent this year, Cominar has provided a safe refuge for investors.
A lot of investors lost interest — not to mention money — in trusts when the federal government announced a new tax on distributions that will take effect in 2011. But the trust market soldiers on for now and, if you look closely, you'll find some names that have held up nicely in the recent stock market volatility. Investors who remember the go-go days for trusts in the last bear market may not be satisfied by this, but smart investors are always on the lookout for shelter in a storm.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.