A new report suggests the conversion trend from stocks to income trusts will continue.

According to the report from Standard & Poor’s Ratings Services, the market capitalization of Canadian income trusts has grown four fold since 2002, and currently accounts for about 11% of total market cap.

S&P says it expects to see that share to continue to grow.

The ratings agency notes that in the past year, income funds successfully dealt with the unlimited liability issue that restricted institutional investors and received confirmation that income funds will become part of the S&P/TSX Composite Index sometime in 2005.

“Due to the maturing of the income fund market and increasing investor interest, especially from institutional investors, we expect the corporate conversion trend to continue while existing income funds will seek to grow both organically and through accretive acquisitions,” said Standard & Poor’s credit analyst Damian Di Perna.

However, it also notes, despite all the positive momentum Canadian income funds have enjoyed recently, several funds have endured distribution cuts and suspensions due to operating and financial difficulties, highlighting the fact that not all income funds are equal or suitable for the income fund model. “As the size and complexity of the market grows, understanding the unique characteristics and risks affecting the individual income funds will be paramount in knowing which funds offer the highest level of cash flow stability,” S&P concludes.