Income Trust Talk

If you’ve continued to be a fan of income trusts even after Jim “Flim Flam” Flaherty’s pronouncements about taxing them to death back in the fall of 2006, you’ll know that this type of investment vehicle hasn’t gone away. Sure, there has been some consolidation and a few have converted from trusts to common shares, but there are also new ones coming onto the market regularly. We still have 385 of them in our database, which is accessible by our ITT Premium Service subscribers.

What’s even better is that yields have generally gone up as prices have gone down with the general market. Under such circumstances income trust prices (and those of any other equities that pay significant dividends already) tend to reach a “floor” and don’t decline further. The yield simply becomes so attractive that buyers come into the market propping up prices.

And, what’s even better still is that a bottom appears to be forming after far too many months of falling or sideways moving prices.

The chart above displays the proportion of income trusts (from our database of 385) that have positive trend values based on out relative trend analysis™ (RTA) methodology.

We use the 20 week exponential moving average (XMA) in our projected total return calculations, but it is instructive to see the faster and slower XMA’s as well.

For an individual trust, the ideal scenario is to have the 10 week average trend above the 20 week average, and the 20 week above the 40. The chart is kind of a composite of that across all trusts. Over 60% of trusts now have positive 10 week trend values, and over 50% have 20 week trend values above zero as well. Compare last week’s data to the previous week (the cluster in the middle), or the situation a month ago… a scenario which couldn’t be much worse.

We remind you that our central theme here is to capture capital gains. If we gain bring in some income to offset trading costs, so much the better. So, now is the time to look for some potential high flyers among the Top 20 PTR listings. As usual these projections are generated automatically. You’ll have to do your own due diligence (i.e., research) to determine whether or not there are any extenuating circumstances that may be influencing any particular trust in the list. We offer our list primarily as a “trend screen”, not as buy recommendations.