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Boutiques that snapped up trusts biggest winners under new rules

Most firms took wait-and-see approach


There was a collective sigh of relief from income trust fund managers across Canada yesterday.

The federal government's decision to leave the tax status of the asset class alone and instead raise the dividend tax credit received enthusiastic reviews. But boutique fund companies that made the biggest bet on income trusts through the market uncertainty were the big winners yesterday.

The balance of fund companies took a cautious approach through the fall, tweaking and shoring up positions in the absence of a clear policy direction from Ottawa.

For example, Bissett Investment Management took a wait-and-see approach, staying fully invested through Finance Minister Ralph Goodale's consultation process on the asset class. Bissett bought two new positions -- a real estate investment trust and an energy trust -- and shored up positions in a handful of trust favourites.

"We didn't want to throw caution to the wind. I did not expect a result so good or so benign," said Leslie Lundquist, Bissett vice-president manager of the $993-million Bissett Income Fund.

Guardian Group of Funds Ltd. held fast too, sitting on its estimated 7-per-cent cash raised in August and September through the downturn. The Toronto company shuffled its asset mix and switched some of its business trust exposure to more stable real estate investment trusts, said Gavin Graham, director of investments.

There were few changes at CI Fund Management Inc. The Toronto fund company manages the $3.9-billion CI Signature High Income Fund.

"Very little happened in our funds" said Bill Holland, CI's chief executive officer. "The position was there was just not enough known so we were just waiting."

At least two boutique firms were opportunistic, aggressively buying as skittish retail investors drove down values.

Mavrix Fund Management Inc. of Toronto bet Ottawa would leave trusts alone, citing the uncertain political future of the governing Liberals coupled with the outcry from Bay Street and small investors, said Mal Spooner, president and chief executive officer.

The company built its position in a number of trusts, including Yellow Pages Income Fund, Swiss Water Decaffeinated Income Fund and The Brick Group Income Fund. The company hit the road too, marketing the new Mavrix Balanced Income and Growth Resources Trust, from Vancouver to Halifax.

"People assumed the worst," Mr. Spooner said. "The price of all these things came down, the yields necessarily were higher. . . . This is a good time to buy."

Toronto's Acuity Funds Ltd. was active too, adding new and old trust names to its pool of about $2.4-billion in retail funds under management.

"We were concerned at one point he [Mr. Goodale] may not make the right decision," said Ian Ihnatowycz, Acuity's president and CEO. "But when push came to shove, we knew that common sense would prevail and we were buying when the prices were more than discounting the bad news."

Trust funds may have dodged a bullet but the asset class can expect more competition from dividend funds, predicts Dan Richards, a Toronto fund marketing consultant.

"All of a sudden it has become more interesting from a tax perspective to hold dividend stocks," he said. He expects the fund industry will soon be introducing innovative yield-generating products to meet retiring baby boomers' thirst for income.

Jamie Colliver, a principal with Putnam PanAgora Integra Canada of Oakville, Ont., expects the registered retirement savings plan season will see a flood of products that take advantage of the tax ruling. High demand will mean "a proliferation of structured notes that just hold dividend-paying equities."

Income trust funds

As of Oct. 31, 2005

Assets ($millions)
CI Signature High Income$3,605
Dynamic FocusPls Diver Income Trust2,176
Talvest Millennium High Income1,375
GGOF Monthly High Income II1,122
GGOF Monthly High Income Mutual1,076
Bissett Income-A901
Renaissance Cdn. Income Trust666
Sentry Select Canadian Income448
Dynamic FocusPlus Energy Income Trust412
Acuity Income Trust364


© 2007 The Globe and Mail. All rights reserved.

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