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By Jonathan Chevreau,
National Post
The Wealthy Boomer Blog
Thursday, November 02, 2006 |
Following yesterday’s predictable rout in income trusts, public opinion seems to have bifurcated into two groups.
Adrian Mastracci, portfolio manager at Vancouver’s ‘fee-only’ KCM Wealth Management, says, "Wise investors should limit trusts to not more than 10% to 15% of the total portfolio, provided they have the risk tolerance for them."
One, presumably from observers whose personal holdings in the sector were minimal, seem to think the Government did the sensible thing. An example is Post columnist Terry Corcoran’s piece today, who takes the stance that Finance Minister Jim Flaherty killed a tax gimmick that desperately needed killing. Other coverage highlights similar action taken to close comparable structures in Australia and the United States.
The other camp, also predictably, are investors like the ones we mentioned on Monday: “George,” who was 100% in income trusts, and others whose asset allocation was way out of whack.
These kinds of investors, including the senior couple profiled in today’s Post, naturally feel angry and betrayed. They are firing off nasty emails to their MPs and the media, swearing never to vote Tory again.
Typical is reader D.M., who feels “absolutely sick. What I find most distressing is that they lied to us. To be fair Harper should make this an election issue.”
Rick Kazmierczak cc’d me on a letter he wrote calling for the resignation of his local Tory MP in Simcoe County.
For those who have lost a lot – at least on paper – one has to be sympathetic. It’s probably a good thing for them to vent a bit. Their strategy – or gamble -- may have stood them well for several years and they are probably still ahead of the game.
But it still needs to be said that this is only one asset class in one small country. The piece about Canada being a scary place to invest from a foreigner’s perspective (which ran Oct. 31, hours before the shock announcement) recapped some of the more bizarre aspects of the Canadians securities market: all there for the reading in the IDA-sponsored Canada Steps Up report. Two days later and the Post’s Jacqueline Thorpe reports today that the new mantra on Wall Street is “Sell Canada.”
Generally, the investors who have been overweight the trust sector are “do it yourselfers” who no longer use financial advisors. “Having a portfolio of 100% income trusts is from the standpoint of proper portfolio theory is just plain dumb,” say former advisor Stephen Gadsden, now a corporate writer.
A more mainstream recommendation is that of Vancouver-based advisor Adrian Mastracci, who believes wise investors should limit trusts to “not more than 10% to 15% of the total portfolio, provided they have the risk tolerance for them. I raise the caution flag above these levels.”
It’s hard to get too worked up about the plight of those who ignored such counsel. The writing was on the wall a year ago, when the Liberals attempted to stem the tide by briefly floating the same kind of trust on distributions as the Tories let fly this week. The carnage in trusts then should have been evidence enough of the danger. Fortunately, investors got a reprieve when Ottawa instead chose to sweeten the dividend tax credit. Trusts rebounded, giving investors an opportunity to rebalance into a more sensible asset mix.
Ironically, those who may have maintained a more modest 5% or 10% weighting in the sector may find an opportunity to raise their holdings in the coming weeks. In fact, Milton Drash, the advisor whose entire personal portfolio is concentrated in just two trusts (Cineplex and Riocan) was doing just that today: buying more Cineplex.
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