The full article,
S&P launches income trust indexes
ETFs expected
Garry Marr
National Post
Friday, July 12, 2002
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Standard & Poor's and the Toronto Stock Exchange, faced with surging demand from investors for income trusts, are launching three new indexes to represent that growing segment of the market.
An index will be set up for energy and real estate investment trusts with a third index acting as a broad composite of all market segments, including Energy and REITs. All three will launch on Oct. 15.
S&P also said yesterday it expects exchange-traded funds will be available on one or more of these indexes.
Barclays Global Investors Canada Ltd. has been licensed to create an ETF, based on the S&P/TSX Canadian REIT index. It would trade on the Toronto Stock Exchange.
"We are negotiating," said Glenn Doody, vice-president, Canadian index services for S&P, adding the three three new indexes reflect the importance of these types of securities. "We believe that index-linked products will provide investors with opportunities to further diversify their portfolios, while taking advantage of the unique features of the income trust structure."
Stephen Rive, general manager of Barclay's iUnits, which already has 11 ETFs on the TSX, would not comment yesterday. "We have a broad licence for exchange-traded funds," he said.
The management expense ratio on the Barclay's ETFs range from 0.17% to 0.55%. The income trusts would probably be closer to the high range of MERs.
Michael Brooks, executive director of the Canadian Institute of public and private real estate companies, applauded yesterday's announcement as a long-deserved recognition of REITs.
There's has been concern about including REITs in any sort of index because of the question of unlimited liability to shareholders stemming for the fact they are not corporations.
But Mr. Brooks' group and others in the real estate community say they have legal opinions saying there is no liability.
The problem is there is no provincial law in Canada conferring limited liability on the beneficiary of a trust, which all unitholders are.
While S&P has agreed to put them in its own index, no decision has been made about putting REITs or income trusts in the broader TSX index with other equity issues.
In launching the new indexes, S&P and the TSX noted income trusts are the fastest growing segment of the Canadian equity marketplace, with 150 issues representing market capitalization of more than $45-billion.
Under the rules set up by S&P, income trusts must derive their income from actual operating entities to be included in the new indexes. Within each index, individual trusts will have their relative weights capped at 25%.
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