For a manager of a $224-million mutual fund loaded with income trusts, Rick Howson certainly played it cool this week as investors tore up the trust market in response to a federal crackdown on the sector. Market turmoil like this creates buying opportunities, but Mr. Howson said he isn't doing any reshuffling of the Saxon High Income Fund's portfolio just yet. "I think we have to be cautious," said Mr. Howson, who has managed the fund since 1997, when the trust sector was a tiny fraction of what it is now. "Trust valuations are reasonable now, but there still could be some further selling. I don't know." Looming large in Mr. Howson's thinking is a concern that investors holding mutual funds loaded with trusts react to the week's developments and ask to redeem their holdings. There's a risk here that funds will have to sell some of their trusts to cover these redemptions, and this could in turn drive down trust prices. Mr. Howson said he planned to call some traders to find out if they're taking orders from fund companies liquidating some of their trust holdings. Meantime, he's checking out some research from a major investment dealer that shows which trusts are now being valued the same as corporations (the new federal trust tax will treat both trusts and corporations the same), as well as which are being valued at a discount and premium. "I'm looking at this to find out what we have that looks like it's still at risk, and what looks like a potential purchase," he said. Mr. Howson said Saxon High Income is facing redemptions, but he doesn't believe he'll have to sell any trusts because the fund has close to 4 per cent of its assets in cash.
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