Income trusts have crowded out common stock so effectively that the supply of common equity shrank last quarter, BMO Nesbitt Burns reveals in a research note.

The report says that for the first time in 42 years, the net issuance of Canadian common stock turned negative in the latest quarter (ended June 30).

Net shrinkage of common stock is nothing new to the U.S. market, BMO notes, although in that market, new issues are frequently overwhelmed by leveraged buyouts and share buybacks.

BMO says that these factors are on the upswing in Canada, but “the driving force of common stock shrinkage in Canada is their displacement by income trust units”, it suggests. “Hence, there are no cries of despair from the investment bankers of Bay Street.”

Income trust issuance in the second quarter hit a record $5.0 billion, BMO reports, adding that a few years ago that total would have been typical of common equity issuance. “This spectacular transformation has been unique to the Canadian market, thanks to favourable tax treatment for trusts relative to common stock,” it explains.