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Canadian Energy & Income Trusts ((Merged thread))

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I would suggest that not all are impacted equally by the proposed tax-law changes and some represent genuine bargains today. Some only exist because of and rely on the trust form, others simply have taken advantage of it and will do fine reverting to alternate forms. I would for example, NOT buy the trust index BAI.UN as it contains a lot of the former.

 

Existing trusts have 4yrs to figure how to deal with the eventual legislation. Moreover, the opportunity to get one hands on oil sand assets at these rolled-back prices, outways the concern over the form of the holding entity IMHO.

 

In recent days/weeks I’ve bought substantial positions in Arc Energy (AET.UN) and Canadian Oil Sands (COS.UN) at prices I thought I’d never see again.

 

PennWest (PWT.UN) and Vermillion (VET.UN) are on my buy list for the New Year.

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Several of the Canadian Trusts have listings in the US also.

These may be easier to buy:

 

 

Trusts traded on either the New York or American Stock Exchanges.

 

Enerplus Resources Fund (ERF) ... update

bigfa4.gif

 

Pengrowth Energy Trust (PGH) ... update

bigtw0.gif

 

Petrofund Energy Trust (PTF) ... update

 

PrimeWest Energy Trust (PWI) ... update

bigkg3.gif

 

Provident Energy Trust (PVX) ... update

bigxd0.gif

 

...here's one with Coal assets:

 

Fording Trust (FDG) ... update

bigfe1.gif

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Several of the Canadian Trusts have listings in the US also.

These may be easier to buy:

Trusts traded on either the New York or American Stock Exchanges.

 

Can anybody tell me their opinions as to whether these have been oversold? I mean their charts are like the down ramp of a large multi-storey car park.

 

So if you were to buy a few of these funds now, what other risks do they entail?

 

Surely they will continue to produce yields (high yields in some cases) for a few years to come?

 

If they continue to produce those yields, is there a significant risk to the actual capital invested (much beyond what has already occured?)

 

And does that risk to the capital invested get riskier as they get closer to being wound up (2011?)?

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Yes, they are oversold, but could go deeper oversold before the drop ends

 

I may nibble for a few soon. But will hold off on putting in a fullinvestment until I see some sideways action on light volume, suggesting the selling is drying up

 

Falling crude is not helping here

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WHICH ONE is the Kahuna??

 

TRUST COMPANY======== Symb. $ MktCap +P/E +Div/$Price : Yield

Enerplus Resources Fund(ERF) $ 5.49Bn 10.1 4.46/$44.71 : 10.00%

Pengrowth Energy Trust (PGH) $ 3.31Bn 8.31 2.16/$17.97 : 14.90%

Penn West Energy Trust (PWE) $ 7.48Bn 8.48 3.65/$31.60 : 11.60%

PrimeWest Energy Trust (PWI) $ 1.76Bn 17.4 2.61/$21.01 : 12.50%

Provident Energy Trust (PVX) $ 2.27Bn 9.91 1.26/$10.87 : 11.60%

- -

Fording Canadian Coal. (FDG) $ 3.06Bn 5.25 2.88/$20.80 : 13.80

- -

Fording - Coal (FDG)

 

 

Canadian Trust Triage

John Dobosz 11.02.06, 5:15 PM ET

 

 

Investors in Canadian income trusts found out the hard way on Wednesday that there is nothing uniquely American about breaking campaign promises. Canada’s finance minister, Jim Flaherty, despite his party’s pledge less than a year ago not to impose additional taxes on the trusts, announced late Tuesday that the government proposes to tax trust distributions at regular corporate income tax rates--effectively eliminating the chief advantage of the trust structure as a flow-through entity.

 

The resulting bloodbath for trusts in Canada, including more than a dozen specializing in energy that also trade on exchanges in the United States, has left investors wondering what to do now. Most advisers who have recommended trusts in the past say it’s too late to sell--and at least one recommends fresh buying.

 

Feast on Fear.

((Click here for Richard Lehmann complete list of buys for Canadian royalty trusts with yields now north of 15%...in Forbes/Lehmann Income Securities Investor. ))

 

“I feel the market has overreacted to a situation that is not a done deal,” says Curtis Hesler, editor of Professional Timing Service, referring to the 12% to 15% haircuts many of the trusts took on Tuesday. Under the Flaherty proposal, existing trusts would be given an exemption from paying any modified tax until 2011.

 

Hesler holds eight Canadian trusts in his model portfolio and recommends waiting until the smoke clears before making any moves. “Panic causes mistakes, and selling does not seem prudent at this point, nor does additional buying until we see what we are up against. I will be very surprised if we don’t see some serious defense brought to bear by both Canadian industry and the electorate.”

 

For the past several years, Hesler and many other advisers had been big bulls on Canadian “royalty trusts,” which own or lease oil and gas rights and collect royalties from producers, which they pay out to shareholders. The payouts are considered qualified dividend income for U.S. investors and subject to only a 15% tax. The Canadian government withholds 15%, but U.S. investors can claim an offsetting tax credit on their Federal tax return. The dividends are not taxed at the corporate level, but only when they’re received as income by unit holders.

 

Richard Lehmann, editor of the Forbes/Lehmann Income Securities Investor, agrees that implementation of the Flaherty proposal is anything but assured, noting two abortive attempts since 2004 to change tax laws pertaining to trusts in Canada and the proposed grace period until 2011 for existing trusts. “Our thinking is that five years is a long way off, and political pressure will likely delay the tax further or kill it altogether," he says.

 

Special Offer: Have you already sold your Canadian trusts and are now looking for investments that kick out similar income? Click here for big yields from a technology business development firm in FindProfit.

Lehmann, a big proponent of ‘Canroys’ since 2003, is busy adding more to his holdings as prices plummet and yields skyrocket. Harvest Energy Trust (nyse: HTE - news - people ), for example, now yields 15.6% after losing 20% of its value in a day and a half of trading. Lehmann is also buying Canetic Resources Trust (nyse: CNE - news - people ), which yields 13.5% after getting hammered 22% lower than its Oct. 31 close. Other Canadian trust casualties in which Lehmann finds yields too tempting to pass up include Provident Energy Trust (nyse: PVX - news - people ) at 13.7% and Penn West Energy Trust (nyse: PWE - news - people ) at 12.7%.

 

"You'd be hard-pressed to find these kinds of yields even on junk bonds," says Lehmann.

 

Jack Adamo, editor of Insiders Plus, was tempted to buy Fording Canadian Coal (nyse: FDG - news - people ), but he’s holding off for now. What concerns him is not so much the Flaherty proposal--he doubts that it will pass--but the steel industry. “Fortunately, most of the developed world now understands that you can’t abuse business and expect it to thrive,” he says. “I want to talk with the company first, and I want to see a few more earnings reports from steel companies,” says Adamo. “So far, it looks like steel is going into a downturn at the same time the stock market is losing momentum. That could make Fording vulnerable to further weakness in the short term, since it sells its coking coal directly to the steel industry.”

 

The bombshell out of Ottawa, Canada also lit up the message boards at online investing community ValueForum.com, where members feverishly discussed at what price royalty trusts would be a good buy. Ron Lane of St. Augustine, Fla., one member who’s heavily invested in a handful of trusts, says he’s avoiding selling his holdings into the current weakness. “The lemmings got out yesterday,” he says. “Fortunately, we’ve been in these for the past three and a half years, so we’re still sitting on gains. I’ll see what happens.”

 

Meanwhile, Lane says he's going to step up his buying of closed-end funds with yields around 8%, as well as check out some business development companies like American Capital Strategies (nasdaq: ACAS - news - people ).

 

@: http://www.forbes.com/2006/11/02/canroys-p...artner=yahootix

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There's a risk I may miss out on today's low prices while waiting for my

"mid-December ideal buying opportunity" to arrive.

 

So buying some now may make sense, if you have cash.

 

I am hoping that Gold share prices continue push upwards, and I can liquidate some of my juniors at

higher prices, and will have more to invest.

 

The Dec. Tax-selling thread may be worth a look for more specific ideas

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NOT EVERYONE IS BULLISH...

 

The tax expert who may have helped spur the government to crack down on income trusts by predicting that conversions to the structure would cost more than $1-billion in lost revenue believes that income funds are now destined to become an endangered species.

 

Jack Mintz, the University of Toronto professor who crunched those numbers, will join lawyer James Scarlett of Torys LLP and Sandy McIntyre, one of the country's largest trust investors, in Toronto to look at “The Future of Income Trusts — To Be or Not To Be.”

 

The general consensus at the moment — and Mr. Mintz's view — is that the likely outcome for most trusts is not to be.

 

A poll last week by the accounting firm Deloitte & Touche found that trust executives and advisers to the sector expect trusts to start disappearing before the end of the government's four-year tax holiday. The big reason it hasn't started yet is because Ottawa hasn't laid out the rules for conversions back to corporations, trust executives and advisers say.

 

“A lot of trusts in the end are going to move back to the corporate world to have more flexibility,” Mr. Mintz said. He said his call for a refundable dividend tax credit, which would make dividend-paying stocks more attractive, as well as for the ability of investors to exchange units for shares without triggering a capital gains tax hit would create even more incentive to convert to corporate status.

 

The other likely outcome for many trusts is being swallowed in a takeover, as private equity firms from the United States and abroad are drawing up lists of target companies and await only a further drop in prices before they strike.

 

The interest from private-equity firms is “huge,” and “there's going to be a lot of U.S. money coming in,” said Mr. Scarlett, who focuses on mergers and acquisitions in addition to trusts.

 

In a survey of 360 trust-sector managers, trustees, advisers, investors and lenders, Deloitte found that 87 per cent said the number of trusts will fall to 100 or fewer within four years from the current 256, and 52 per cent predicted no more than 50 trusts will be left by 2011.

 

“It's going to happen quite quickly,” said Deloitte vice-chairman James Goodfellow. For companies that need to raise capital to grow or replace declining assets “the issue is just give me the rules so I can understand the tax consequences of rolling back, for example, and as soon as I understand that, let's get on with it,” he added.

 

Income trust investors hoping for a bounce in valuation between now and the end of the tax holiday may also be disappointed, according to the survey's finding that 58 per cent of respondents believe the income trust index will fall further in the next four years.

 

Many trust investors blame Mr. Mintz in some way for the drops in their trust investments because of the massive publicity generated by his conclusion that, with the planned conversions of telecommunication giants BCE Inc. and Telus Corp. into trusts, the federal government stood to lose $1.1-billion in tax revenue because of the trust phenomenon.

 

Mr. Mintz's calculations have sparked a heated debate about what, if any, is the real number for lost tax revenue, and supporters of trusts have vigorously disputed his findings.

 

For example, Economist Yves Fortin, working on behalf of the Canadian Association of Income Funds, this month concluded in a paper that “it might well be that no tax leakage would be found if such a study was done properly.” The current government, for its part, hasn't released the numbers it has come up with.

 

One problem is that all such models rely on so many assumptions that a small change in one of the underlying assumptions (how much trusts pay out, for example) can vastly change the conclusions. “That's unfortunately the land of policy setting and macroeconomics — you build these big macro models and you tweak something and it's ‘Holy cow,'” Mr. Goodfellow said.

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Has any of you UK-based investors received an income payment from a Canadian Income Trust?

I've read the TSX details about taxation for foreign stock holders, but wondered in practice, could you confirm how tax was treated?

 

Even without some of the potential retracements of an average of 50% to yr highs, the price earnings and income levels of these seem attractive for some diversity of exposure to energy.

 

 

pe income

Fording Canadian Coal 6.2 13.7

PrimeWest Energy Trust 6.6 12.0

Penn West Energy Trust 8.5 10.9

Pengrowth Energy Trust 8.2 15.5

mean 7.4 13.0

 

But the article above, possible year-end selling, and further changes make it uncertain.

however the suggestion in the article that CITs may be buy targets sort of contradicts the long-term gloom and doom. Aren't these still energy related producers with low PEs?

 

PE, imcome after tax and possible lows still SEEM attractive.

Don't know. I have a selection of UK traded geographically and size diverse energy COs, and had thought some of these would be a good addition.

 

Any more comments welcome.

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Hi all,

 

Have been monitoring this board and this thread with interest.

 

I was originally bottom feeding on some of the income trusts immediately after the announcement, when they were really oversold.

I am not a experienced or canny investor byany means, but I percieved value and dived in.

They are up about 5% overall since then despite the tax related sell offs over the last week or so.

The dividends on some of these companies are where its at though - anyone agree.

 

Since the Canadian tax deadline for selling shares and realising a capital loss is today (22nd dec),

 

What do you guys see as the outlook for Energy trusts over the next year (all the time I expect to hold them)???

I guess the big question is the price of oil and whether it can survive a US recession (both likely IMHO).

 

Thanks

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"What do you guys see as the outlook for Energy trusts over the next year"

 

I THINK PROGRESS will largely depend upon oil prices,

and i am bullish on oil

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bought my first canadian energy trust yesterday

 

that drop in oil of recent days, have brought some of the trusts back to retest their lows.

may add more this week, if the downwards drift continues

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I have received my first monthly distributions from the trusts I bought in November. There is a 15% Canadian withholding tax applied to the distributions. I have no further tax to pay in the UK, as I hold in a SIPP.

 

I am bidding to buy PrimeWest (PWI) today.

 

Later: I bought Primewest and Fording Coal today.

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This thread has been a very interesting read as I have been trying to make up my mind about the canadian trusts (in particular, the energy ones).

 

Have the 1st 2 months of 2007 changed or cemented anyone's take on them?

 

Also, I see the last contributor was from the UK and he had 15% of a distribution withheld, but had no further tax to pay due to his use of SIPP. As a resident of Ireland, is it safe to assume that I will be subject to the same 15% withholding, and then my own local rate of income tax (investment would not be via any retirement instrument etc).

 

Cheers.

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At the moment I feel OK as a UK investor in energy trusts in an ISA (as part of a diversified portfolio).

I learnt about them firstly through this site, so feel I should keep an update going.

 

Only time will tell if energy is presently expensive or cheap compared to months and years down the line.

 

My total investment in 8 companies over the last 2-3 months is presently around cost price, and top of his minileague is harvest energy with a 7% gain in share price, c15% net income, whilst income has been constant since feb 06 throught to next two monhs.

 

I took the path of investigating how regular the income payments have been to date, whether the company has a policy to try and ensure constant payments taking into account energy price fluctuation, plus I ook a serious look at growth and development history and prospects, and life of resource. At the time of buying these had 10-18% incomes, but the best will have diminshed with recent increases in share prices.

 

 

My list is as follows

Harvest Energy Trust

Trinidad Energy Services Income Trust

PrimeWest Energy Trust

CCS Income Trust

Fording Canadian Coal

Pengrowth Energy Trust

Penn West Energy Trust

Enerplus Resources Fund

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Also, I see the last contributor was from the UK and he had 15% of a distribution withheld, but had no further tax to pay due to his use of SIPP. As a resident of Ireland, is it safe to assume that I will be subject to the same 15% withholding, and then my own local rate of income tax (investment would not be via any retirement instrument etc).

 

The 15% Candian withholding tax applies to all non-Candian residents, so you should assume all income is paid less that 15% tax.

 

If you do not hold within a special tax wrapper in Ireland, the income will be subject to normal Irish income tax, if you are a resident of Ireland. You MAY be able to deduct the 15% already paid in Candian tax from your Irish tax bill. However, this will depend on the precise provisions in the Irish/Canadian double taxation Treaty, if such a treaty exists.

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Think I may have found a beauty:

 

Precision Drilling - an income trust in the oilfield services sector.

 

PE Ratio 5.73 ; Divident yield of 13.77%

 

http://www.precisiondrilling.com/

 

Chart looks to have found a bottom after a Bubb ABC correction and is now sitting on topo of 21 and 55 dmas at a potential inflection point.

 

CHART

 

Anyone know it?

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These trusts have fallen sharply over the last few days and are looking very tempting (as they were around Christmas).

 

Does anyone know whether the sell off is just linked to the general market sell off or if there another reason?

 

PS enjoyed the latest natural gas CWR show, excellent work.

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I too have been buying the Canroys this week, namely PWI, PWE and HTE. I think these are suffering from the general deleveraging effect, as funds are forced to sell the good with the bad. These are obvious targets as they are liquid and likely to have been part of the carry trade given their high yields.

 

I am watching the payout ratios and the life of proven and probably reserves. HTE on that front is around 60-70% and around 9yrs.

 

I think these figures are very promising. I assumeing that part of the remaining 30-40% goes to an exploration budget with the ultimate aim of reclaiming the years as they pass - so for example next year HTE will ideally still have a 9 year life.

 

Dr Bubb or anyone else do you know how successful they have been at doing this? I notice that HTE has a refinery business which helps diversify and means not all its income is subject to drawing down on reserves. Also PWE has an oil sands project, that could add signicantly to future reserves and revenue.

 

Anyone like to comment on their favourite picks and benefits of the same. also I am reading that even if the tax changes take place in 2011, some trust eg PWE estimate that for tax reason they will be unaffected til a few years later!? :lol:

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also I am reading that even if the tax changes take place in 2011, some trust eg PWE estimate that for tax reason they will be unaffected til a few years later!? :lol:

 

Interesting. Can you tell us where you read this please?

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