Overall, trust units were priced up during 2006 so that relative cash yields fell from a median of more than 10% to approximately 9% per annum. The rise reflects growing insight into underlying asset values not previously given due consideration by those trading trusts just to chase cash yield.  But it also confronts those who suggest trusts have merely been an opportunistic tax scam designed to take advantage of retired income-seeking investors during a period of low short-term interest rates.

Attention to trusts helped many learn that past assumptions are wrong.

Some people assumed income trusts lose value when short-term interest rates rise, as if dividend-paying equities are really yield-focused or fixed income products. Some assumed that income trusts in Canada are like trusts in the U.S. where assets can not be renewed or utilized alongside an active business.  As an innovative form of ownership, trusts were often misconstrued as an entirely homogeneous asset class with a single risk and return profile. And some people blindly characterized trusts as a tax avoidance vehicle worthy of legislative change to close tax loopholes.

BCE is often considered a Canadian “blue chip” company. And so it will be as common equity or trust. It’s owned by a lot of Canadians directly and indirectly through fund of funds and pension fund ownership.  BCE and Telus share status as large widely-held companies. 

As BCE follows Telus towards conversion, the public can see a more mature business following a more growth-oriented telecommunications company into the realm of flow-through entities.  Yet these two moves follow a past decision by Manitoba Telecom to avoid pressure from large fund managers to convert into a trust.

Trust conversions do not provide the universal rule for creating shareholder value according to Manitoba Telecom.

If anyone has an ability to learn, then they should know that it is a fallacy to generalize that if one company in a sector converts into a trust then all companies have similar ability or intent to operate that way.  Market size or scope of public ownership does not define the quality of the company, its operating potential or the intent of managers and existing owners.

Care is required to understand the underlying assumptions and intended implications of those who ask, “What telecommunication company will convert next?” Particular care is required when that question frames mistaken assumptions about “tax loss” due to trusts.

Continuous and open dialogue is required to support learning and set agendas for change, not narrowly defined monologue.

RE BCE situation, also see:

BCE Proposes Joining the Maturing Trust Market

Size Matters

Trust Market Stengthened

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Real Taxing Concerns

Call for Constructive Discussion

The health and credibility of local markets and the Canadian economy in a global market depends on fully informed policy-making and leadership in establishing integrated tax policy in, first and foremost, a stable policy regime.

Public desire for reasoned debate and a demonstration of leadership did not prevent a group from performing a very political stunt for the sake of media attention at the federal Liberal leadership convention. A bikini-clad woman walked through the crowd with a sign stating two opposing views. On one side it said “Income Trusts Bad”. And on the other it suggested participants not forget the interests of small investors.

So it is with continued intent to host meaningful discussion that iTrust Institute was established and brought to life in 2006.  Unlike trade associations or the companies involved, we can provide a non-partisan floor for open discussion and can truly welcome participants from all sides of the market. Please let us know your thoughts.