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Gold/Mining/Energy : Canadian REITS, Trusts & Dividend Stocks
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To: Lorne Larson who wrote (3412)6/12/2002 12:08:19 AM
From: a.handbag.  Read Replies (2) of 11633
 
Yes, the pros do not like the trusts. My take on why: a large number were started in 1996 and were pitched to seniors, who were getting poor returns on fixed income investments as interest rates declined. Many were priced at $10, with $6 down and $4 in a year. Of course in a year many couldn't come up with the $4 and had to sell. Then oil fell to $10 and the royalty trusts tanked. The tech bubble was inflating and by 1999 people were selling their grandmothers to buy into the New Economy. There was a hierarchy of awfulness beginning with the Old Economy rust belt manufacturers. And what was rusting? Steel. And could you go lower than steel? How about an iron ore trust? Everything in this category was dumped, happily some of it into my account.
The royalty trusts are tarnished by the pros by two special phrases, "return of capital" and "Ponzi scheme". There is a grain of truth in each. The question to ask is "are the reserves depleting?". Of course without additions they would. But don't they acquire new reserves? Yes, but they use new money to do so. I have heard that there is some research that shows that reserves per share are still declining. If the commodity price were stable then the above phrases would apply, although in such a long drawn out manner that I don't think I care. However, I'm betting on an increase in commodity prices, which will surely trump depletion.
So it comes as no surprise to me that there is widespread distrust of trusts. But where else do you want to re-invest your distributions? And don't you want to invest in something that's hated?
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