If income trusts are allowed into S&P/TSX equity indexes, there are 47 eligible candidates, according to a new report from CIBC World Markets.
CIBC notes that the debate over whether income trusts should be included in the main S&P/TSX indices has raged for a long time. “We believe income trusts belong to common equity in economic substance; therefore, they should be included in the indices,” it says.
The risk of unlimited liability for these issues has been one key stumbling block, although CIBC says that legislated protection for income trust unitholders was recently introduced in Alberta and has been tabled in Ontario, which it thinks “will likely make income trusts eligible for the S&P/TSX Composite Index in the near future”.
To be eligible for the S&P/TSX Composite Index, a company must meet three criteria:
- minimum volume-weighted average price of $1;
- minimum weight of 0.05%; and
- three liquidity measurements.
CIBC says that 47 trusts currently meet these criteria. It adds that, “If income trusts were included in the S&P/TSX Composite Index, index fund managers would have to buy those trust units proportionally, generating index-related demand.”
Trusts on the list include Canadian Oil Sands Trust (COS.UN) and Summit REIT (SMU.UN).