When considering oil and gas trusts, the returns going forward and whether to hold the trusts long term or to take some profits, I would also suggest you look very closing at the long term bond rate.
-------------------- That maybe and idea. But like looking at one fact (other investment vehicles) or two facts. May not be all the facts ---------------
Many people have moved into trusts reflecting a move towards yield.
----------------- Yield may not be the primary focus as you say. It might also include how the other areas of the market are doing. The collapse of the techs. The dissatisfaction with capital growth especially after the collapse. ------------
That is why Bay Street is selling as many of the IPO trusts as they can to take advantage of the enthusiasm of the retail purchaser.
------------ As I myself have said in an earlier posting of my own. ------------------
As a result of the recent price moves, the yield on some of the trusts have gone down. RBC estimated yields of between 11.1% and 13% on average based upon $22.50 oil and $3 for natural gas for the O&G trusts for 2002 (ARC, NAL, Freehold, Pengrowth, Enerplus & Prime West)and the price of all these trusts have moved up since the report was released. The assumption and discussion on this thread focuses on commodity prices and the assumption is that only the price of oil and gas will dictate the price. While commodity price is very important, the trust unit price will also be affected by the rate of return in the bond market.
------------------- Although you have STATED this and although it may be in part true. The question is how much of an influence is it? YOU DON'T PROVIDE ANY DATA to show. You make some assumptions but are your assumptions correct. Just how many long term bond holders would be trust holders.? And how many trust holders would be long term bond holders. You cant provide any numbers. Then just how do you know.?? Your guessing. And you maybe guessing wrong. I said I don't trade these trusts because you have an equal probability at any one time of being right. And an equal opportunity of being wrong. Because of not looking at all the information, or having an unexpected event happen. And for me and others that is just not good enough odds. ------------
If the bond market goes down (ie. rates are rising), this will drive down the price of the trusts.
--------------- Again do you have any data to support this. All one need do is look to the past where rates have risen. Does such a time necessarily see unit prices drop. The answer is NO. It might be a good idea to check and see for yourself. Until you do and can provide evidence to support such. All your doing is making an assumption. And one should never invest based on assumptions. Just look to the recent past with the doom and gloomers here. They gave some facts to suggest thayt ngas was going to go to well under $2 possibly $1 or lower. But it did not. And in fact went much higher. THEY WERE WRONG. Because they missed something, something very important. And as a result their returns or losses were the results. AND THAT IS WHAT HAPPENS. -------------
All the economists assume that inflation will not be significant and see little increase in rates. I am not so sure and I worry about seeing higher interest rates by summer. Simple math but if a bond is yielding 5% (ie. $5,000 on a $100,000 bond), if the market demands 6%, the bond will be trading at $83,333 for a decline of value of close to 17% (unless you hold to maturity). The 1% increase in interst rates represents a demand by the market for 20% more in return. If oil and gas income increases by 20%, then perhaps the trust prices hang in there. If not, prices may go down. The trendline in interest rates has generally been down since 1995 (spiked up in 1998 & 99).
------------ You give a fact here of rates spiking up in '98 and 99. But just looking at some info from the unit price history of PGF.UN we see unit prices going from a low of $15+ to $18+ and from $10+ to $16+. Thats from one years lows to the next years high. As I showed in an earlier posting. And then there is similar data for ERF and PWI as I put up earlier. Data taken from FP Datagroup 10 year price range and dividend record. ----------------
If all the fiscal stimulus by the Federal Reserve brings inflation or increasing interest rates, the market value of the trusts could be adversely affected.
------------ Could be or could not be as I show with some real data --------------
In my world, taking profits and preserving capital is not a bad thing
----------- Its not a bad thing if you do it for your own personal circumstances. It could be a bad thing if you do it because you ar not using all the information to make a correct decision. And only think you are. I detailed in my analysis of Lorne selling PWI at that loss and buying PVE. It was worse off than not getting scared and then buying on weakness and then the unit price rising. Which it did. That is documented fact. You make the assumption that your going to be taking the profits and things will turn out exactly as you say. Well simple fact is that things don't always turn out as you say. You could be wrong. Of course like Lorne you can show him with simple math that he was wrong and he just denies it. He won't even counter it. Because he can't. --------------------
so I have started and will be in the process of selling 1/3 to 1/2 of the trusts I own. I am not suggesting anyone follows suit but I do think you should consider the effects of interest rates on the price of the trusts.
------------------- People should consider everything when looking at what they should do. Not one or two and think that one or two is the all. Because it is not. For close to 20 years I have been accumulating these trusts. And the one thing for certain is that they go to highs and to lows and back again over and over again. You can't hit the exact highs and lows like magic. And the only way to be certain that you don't make a mistake of doing the wrong thing at the wrong time for the wrong reasons. Is to accumulate on the weakness and enjoy the rises when they come following a historically proven strategy. That can be tested and followed with the real past and real time historical trading data --------------------
Good luck with you investment.
TommyD
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