"Baskets of Trusts"

[uhoh]

I think I may have made a mistake (not a very unusual situation, truth be told).

I bought EIT.un on the *advice* of a friend. Now I'm regretting it after having been up reading all night. I am wondering whether to bail? My intention was to buy one of the baskets of trusts. This is about 3% of my portfolio. As a complete newbie, do you have any advice - keep it or sell it and buy something better? I plan to educate myself more for the future LOL but for now am wondering what action to take.

Much appreciated.

[Shakespeare]

Find your circle of competence (or comfort) and stick to it.

If you're not comfortable, either sell or learn.

[uhoh]

Find your circle of competence (or comfort) and stick to it.

If you're not comfortable, either sell or learn.

Welll, I found this site last night and am planning to learn. I have an immediate opportunity in that my broker is offering free trades as a fundraiser, later next week, so thought I'd query the experts here as to whether to sell EIT.un or not...and if so, which to buy commission-free instead.

I am definitely not in my comfort zone and admit it.

[Shakespeare]

You can find more information on Enervest here.

You should not consider this in isolation, but rather in terms of your overall asset allocation strategy and investment plan. If you don't have a plan and an asset allocation, you should make both (or get them from an advisor) before deciding whether Enervest fits.

See
BMO Investor Profiler
Edmond Questionnaire
TD Waterhouse Planner

And this on portfolio design.

[uhoh]

Thank you for these links - I'd read the enervest one already - but the asset profilers are great. My portfolio is currently 75/25 and a quick go at the BMO profiler says I should be closer to 65/35.

[biker]

I have owned Enervest for several years . What exactly has spooked you on this trade.

[Adrian]

I bought EIT.un on the *advice* of a friend. Now I'm regretting it after having been up reading all night. I am wondering whether to bail.

If you have not drafted a simple invetment game plan for yourself, do that first. It will save you many late nights of reading, among other things. If you search this site, you'll find many tips on this.

On the plus side, at least the purchase is only 3% of the portfolio. On the other side, if you can't live with it, the cost to sell is a small price to pay. However, you may have a gain or loss to deal with.

If you're a newbie at investing, you probably have a long investing journey ahead of you. So, don't fret too much over one possible slip up.

We've all made some mistakes. Even the pros. It builds investment character.

Step back for a moment and ask yourself whether the purchase you made, and the other holdings, fit within your criteria.

Adrian

[uhoh]

What exactly has spooked you on this trade.

Late-night reading, over-tired-but-unable-to-sleep-therefore-perhaps-misunderstanding reading that SIN (sp? can't remember which others) were better-managed, more solid...

[arthur]

I own EIT.UN, I don't worry about it.

I also own SDT.UN, sold DHF, AET, AND SHN, bought GMAC Bonds.

[Jo Anne]

What exactly has spooked you on this trade.

Late-night reading, over-tired-but-unable-to-sleep-therefore-perhaps-misunderstanding reading that SIN (sp? can't remember which others) were better-managed, more solid...

I also have owned EIT for a number of years, and I have no issues with it.

My SIN has had a higher appreciation (paid $10.15 for it), but the distribution yield is lower.

Personally, I don't worry too much about my baskets of trusts, and I probably have (what some would consider) too much invested in them. I no longer have any individual trusts.

[twocentsworth]

How much is too much, Jo Anne?

[uhoh]

How much is too much, Jo Anne?

I know you're probably joking with Jo Anne but I'll tell you how much I have - I consider them as regular stocks when I tally the percentages of stocks/fixed income - but if I break out the income trusts, I have 18%. That doesn't include the small amounts probably held within a few of my mutual funds (that I'm moving away from once I feel comfortable). I have Enervest, Enerplus, Epcor and a smidge of Viking - which of the four, is the one I consider my "play" one.

[Jo Anne]

How much is too much, Jo Anne?

EIT 6%
OGF 4%
SIN 14%

I originally wanted only 15-20% in income funds. But the SIN kept going up and up and up...

I keep an eye on it. I'm not ready to cut back just yet, because I don't know where I'd put the money.

[AltaRed]

Wow - 14% is a big number to have in one security. I have about 5% of my portfolio in my company stock and I am getting uncomfortable at that level..... and it is considered a blue chip for widows, pensioners and orphans.

[Jo Anne]

Wow - 14% is a big number to have in one security. I have about 5% of my portfolio in my company stock and I am getting uncomfortable at that level..... and it is considered a blue chip for widows, pensioners and orphans.

SIN is not "one security." It's kinda like a mutual fund of trusts.

[worthy]

kinda like a mutual fund of trusts.

But with a .39% MER.

[twocentsworth]

Hold it long enough Jo Anne, and you won't have to trim it back -- the market will do it for you.

You could always sell off 4% of the SIN, go to cash and then wait for the next trust scare when prices come tumbling down. Buy again and repeat process.

Since you bought back in 2004 (?) when the prices were sweet, maybe you shouldn't worry about a pullback to the original price level and should just keep sweeping in the distributions.

[uhoh]

Hold it long enough Jo Anne, and you won't have to trim it back -- the market will do it for you.

if income trusts are considered to be equities (with the foibles of equities, I presume someone was intending to say, rather than a completely reliable source of income), then I'm wondering if you are serious when you say that you think they'll all disappear - zoom, just like that, all sectors, all sizes etc?

I'm still learning, so be kind

[twocentsworth]

They won't all disappear. But they might evaporate a bit if certain conditions arise -- say a major recession, a sudden threat of higher interest rates, a commodity price decline etc. By trim, I was referring to a situation that would cause a big price pullback. That isn't a worry to Jo Anne because she bought in at 10 bucks and change and SIN would have to be hammered real hard to get it back to that range...but one day it probably will. If you want a passive portfolio, hold on through ups and downs -- as long as your distributions keep rolling in, who cares.

That's an acceptable attitude for baskets of trusts because they have enough good stuff in the bundle to make up for the few bad companies that may crumble and blow away. Individual trusts have to be watched a whole lot closer since their distributions can dry up in an instant -- with a matching price plunge -- if the financials go south unexpectedly.

[Bylo Selhi]

How to pack your trusts [Financial Post, 23Jan06]

There's one thing you must realize about income trusts from the outset: they can be volatile. They are not government bonds. Their income is not guaranteed. They are businesses, and their returns are subject to the same vagaries as any other corporation. That means the value of their units can rise or fall sharply, depending on what's happening in the world in general and in their specific sector in particular. The best way to avoid the risk of poorly performing trusts is through a diversified trust portfolio. Here are some representative ones.

- Barclays Advantaged S&P/TSX Income Trust Index Fund (BAIun/TSX) tracks the S&P/TSX capped income trust index, an index of 71 income trusts spanning the four main groups of trusts. The underlying index is weighted by market cap, meaning that larger trusts will have a greater impact on performance than smaller ones. The fund earned 23.8% in 2005. The MER is 0.98%.

- SCITI Trust (SINun/TSX) tracks the Scotia Capital income trust index. This very broad index contains 135 income trusts, but excludes all trusts with market caps of less than $200-million. The fund earned 36.4% in 2005. The MER is 0.39%. A companion fund, SCITI II Trust, (CITun/TSX) earned 35%.

- The latest offering in this area is the iUnits Income Trust Sector Index Fund (XTR/TSX), which tracks the performance of the S&P/TSX capped income trust index. Just launched in December, 2005, this fund has a 0.55% MER.

- For a more conservative approach, there is the Lawrence Payout Ratio Trust (LPUun/TSX). It holds an equally weighted portfolio of 40 different income trusts. The fund is a merger of three Lawrence funds. Trusts selected have a market capitalization of $200-million or more; have not reduced or suspended distributions for the previous 24 months; and have had their units listed on the TSX for at least 12 months. From this eligible universe, the income trusts with the lowest cash-payout ratios are selected from the various sectors. The investment strategy is based on the theory that the lower the payout ratio, the greater the likelihood the trust will continue to make its targeted payout. A predecessor fund, the Lawrence Payout Ratio Trust, returned 16.7% in 2005. The MER is 0.75%.