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When we talk of geographical diversification in investing, we usually mean balancing our exposure to Canada with U.S. and international holdings.

But it's now time to consider our geographical diversification within Canada, specifically to Alberta and its hard-hit economy. There was a time before the 2008-09 stock market crash when a few trendy mutual funds were using an investment theme of focusing on Alberta-based businesses. Now, reliance on the province has to be considered as a potential risk.

Let's use Boston Pizza Royalties Income Fund (BPF.UN-T) as an example. A new report from IncomeResearch.ca says this national casual dining chain has 28 per cent of its restaurants in Alberta, which means the province is the firm's second biggest market after Ontario at 35 per cent. The report says BPF's share price has fallen to the $17 range partly as a result of the this exposure to Alberta, where low oil and natural gas prices are expected to negatively impact same store sales growth.

IncomeResearch is actually quite high on BPF.UN. "Boston Pizza has a highly recognized brand name and products with an established chain of restaurants that will continue to generate reliable cash flows currently providing a healthy 8.1 per cent annual yield paid monthly," it wrote. It's also worth noting that BPF.UN announced a 6.2 per cent increase in its distribution earlier this month on the strength of record fourth-quarter sales and same store sales growth of 2.2 per cent for the same period.

The positive fourth quarter has helped to sustain a rally in BPF.UN shares off the 52-week low of $15.02 reached in January. But the shares are still down almost 20 per cent for the 12 months through mid-February, a little worse than the S&P/TSX composite index. While the index is basically flat over the past three years, BPF.UN has lost a cumulative 11 per cent.

IncomeResearch.ca offers this caution on BPF.UN – the company operates in a competitive business that is highly dependent on marketing and promotion. Add the Alberta effect to this risk. BPF.UN has done well in compensating for the economic slowdown in the province, but the adversity isn't over yet.

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