The Globe and Mail

What are we looking for?

How Canadian income trust funds have fared lately and over the past decade.

Ottawa sounded the death knell for trusts on Halloween in 2006 with its plan to tax them like corporations by 2011. More trusts have been converting to common-stock companies as the deadline nears.

The shrinking of the trust market has forced funds to search for alternative income-spewing securities, while others are simply winding up.

Today's search

We screened the year-to-date returns to May 31 since some funds are valued monthly. We also checked out funds with at least a 10-year-record. U.S.-dollar versions were excluded.

TD Income Trust Capital Yield is slated to close down at the end of next month. And unitholders of BMO Income Trust will also be asked to agree to let it turn into a global infrastructure fund on or around July 30.

What did we find?

RBC Canadian Diversified Income Trust – launched only a couple of months before Ottawa's nasty Halloween surprise – has blown past its peers for the first five months with a robust 23-per-cent gain.

The RBC fund, whose mandate is to be 80 per cent invested in income trusts and the rest in stocks, has also profited from short-term trading in names like Jazz Income Fund, Kinross Gold Corp. and Goldcorp Inc., manager Jennifer McClelland says.

“We manage this fund quite actively.”

With more trusts converting to corporations, this fund yesterday got the nod from its unitholders to permit it to increase its investments in common and preferred shares of dividend-paying Canadian companies. It will be renamed RBC Canadian Equity Income Fund.

Over a decade, income trust funds have offered investors handsome returns. Renaissance Canadian Monthly Income Fund, which is run by Gaelen Morphet at CIBC Asset Management, has posted an average annual return of 11.1 per cent – outperforming the trust index and even the S&P/TSX composite index.

Her younger Renaissance Diversified Income Fund is run similarly. Both funds expanded mandates in early 2007 to include stocks and bonds, while trusts represent about 40 per cent of assets.

Some of the trusts have provided solid performance over the years, including names like Labrador Iron Ore Royalty Income Fund, Northwest Company Fund, Canadian Oil Sands Trust, Inter Pipeline Fund, ARC Energy Trust and RioCan Real Estate Investment Trust, she said.

Ms. Morphet, a value-oriented investor, attributes her funds' longer-term performance to her conservative approach to investing. “We stayed away from the big income trust IPO market,” she says. “We waited to see how the companies performed as a trust for at least a year following its conversion.”