As the first year anniversary of the federal government’s decision to tax income trusts approaches, the GGOF Monthly High Income Fund management team believes the future of Canadian income trusts is positive.


According to John Priestman, Kevin Hall and Michele Robitaille, there are three key indicators to support their optimistic outlook.

Firstly, current valuations of income trusts largely reflect the impact of future taxation, as evident by the 18% underperformance of the S&P/TSX income trust Index versus the S&P/TSX Composite Index since the trust tax announcement on October 31, 2006, they say.

Secondly, the GGOF managers argue that demand for tax-effective income is growing steadily. According to a recent GGOF/Ipsos Reid survey, 70% of baby boomers plan to use money from investments to pay for retirement. Yet as boomers prepare to retire, the supply of high quality income options like fixed income securities, common shares and preferred shares, iscontracting.

Finally, the managers say that most trusts will morph into high yielding, dividend paying corporations, but not until they have to. Regardless of whether trusts convert into a corporation or retain their current structures, companies with capable management teams, solid business propositions and strong operating platforms will continue to grow and prosper through 2011 and beyond, the GGOF managers say.