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By Gregory Thomas,
Special to the Vancouver Sun
Thursday, November 02, 2006
Income trust prices plummeted in the wake of a Halloween announcement from the federal finance minister, creating single-session losses of $20 billion on the TSX. In New York, markets moved lower on news that U.S. manufacturing expanded at the slowest rate since 2003.
Adrian Mastracci, portfolio manager at Vancouver’s ‘fee-only’ KCM Wealth Management, says, "One of the key things about portfolio management is not to take a big loss."
The S&P/TSX capped income trust index dropped 12.4 per cent, with all 73 income trusts in the index marking losses following Ottawa's announcement that income trust distributions will become taxable at corporate income tax rates -- beginning in 2011 for existing publicly traded trusts, and in 2007 for new issuers.
The S&P/TSX Composite index dropped 324 points at the open, falling as far as 342 points intraday, and closing down 294.20, or 2.4 per cent, at 12,050.39. A total of 261 stocks hit 52-week lows.
Among those hit hardest were Telus and BCE, Canada's two largest telecom companies. Both had plans to convert into income trusts. Telus dropped $8.78, or 14 per cent, to $56.15. BCE fell $3.60, or 11 per cent, to $28.10.
Canadian Oil Sands Trust, the largest trust by market value, dropped $3.01, or 10 per cent, to $27.41. The largest non-energy trust, investment manager CI Financial Income Fund, fell 20 per cent.
Adrian Mastracci, fee-only financial adviser and president of Vancouver-based KCM Wealth Management, has only 1.5 per cent of his portfolios in the iUnits exchange-traded fund that tracks the TSX trust index, and a similar exposure to real estate trusts. His trust-related losses amounted to less than two-tenths of a per cent on the day.
"One of the key things about portfolio management is not to take a big loss," said Mastracci. "It isn't sexy, it isn't exciting. It's actually boring. I keep telling my clients, you don't want to put a lot of excitement in your portfolio. Put it in some other part of your life, if you need excitement."
Still, Mastracci didn't sell his trust position.
"I try not to partake when there's a slaughter going on."
U.S. markets moved lower after economic reports pointed to a slowdown.
Construction spending dropped in September as private residential construction fell for the sixth month in a row. The Institute for Supply Management's new orders index fell to its lowest point since May 2005. The Dow Jones Industrials average dropped 49.71 points, or 0.4 per cent, to 12,031.02. The S&P 500 fell 10.13, or 0.7 percent, to 1,367.81. The Nasdaq lost 32.36, or 1.4 per cent, to 2,334.35.
December crude fell two cents to close at $58.71 US a barrel in New York. December gold climbed $12.50, or 2.1 per cent, to $619.30 US.
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