asset management

Ottawa’s new tax on income trusts comes into effect on January 1, 2011. When it does, it will put income trusts on an equal footing with regular corporations. That will prompt some income trusts to convert to conventional corporations. Others may continue to operate as trusts. Either way, the looming tax has made many investors wary of income trusts. However, some trusts remain well positioned for long-term gains, even with the new tax. These are trusts that operate stable businesses in strong and growing industries. One way we separate these trusts from those that will struggle — or worse — when the new tax kicks in is to look for trusts that have histories of raising their distributions, and plan to keep their payouts at current levels after January 2011....

FORT CHICAGO ENERGY PARTNERS L.P. $10.11 (Toronto symbol FCE.UN; Units outstanding: 140.7 million; Market cap: $1.4 billion; SI Rating: Extra Risk; Dividend yield: 9.9%) owns and operates energy pipelines and processing plants across North America. One of its major holdings is a 50% interest in the Alliance natural-gas pipeline, which runs 3,000 kilometres from Fort St. John, B.C., to Chicago. Enbridge Inc. owns the other 50%. Fort Chicago and Enbridge also own 85.4% of the Aux Sable natural gas liquids plant. As well, Fort Chicago owns 100% of the 1,324-kilometre Alberta Ethane Gathering System. In the three months ended March 31, 2010, Fort Chicago’s revenue rose 6.1%, to $160 million from $150.8 million a year earlier. Cash flow per unit was unchanged at $0.23....

Brookfield Asset Management, $26.37, symbol BAM.A on Toronto (Shares outstanding: 572.9 million; Market cap: $15.1 billion), is a holding company that mainly focuses on real estate, infrastructure and power generation. Its holdings include interests in Brookfield Renewable Power Fund and BPO Properties, which owns, develops and manages office buildings. Brookfield Asset Management also holds resource investments, including Norbord. Brookfield Asset Management has a complex holding company structure that could make it difficult to spot problems, should they arise. We see the stock as okay to hold, but don’t recommend it for new buying. RioCan, $18.56, symbol REI.UN on Toronto (Units outstanding: 242.0 million; Market cap: $4.5 billion) – see above – is a buy for income and growth....

T. ROWE PRICE GROUP INC. $55 (Nasdaq symbol TROW; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 259.0 million; Market cap: $14.2 billion; Price-to-sales ratio: 7.7; Dividend yield: 2.0%; WSSF Rating: Average) sells mutual funds and wealth-management services. The company’s assets under management rose 41.6%, to $391.3 billion at the end of 2009 from $276.3 billion a year earlier. Rising stock markets were the main reason for the increase. As well, the improving economy spurred higher demand for mutual funds. Despite these gains, average assets under management still fell 10.3% in 2009. As a result, T. Rowe Price’s revenue fell 11.8% in 2009, to $1.9 billion from $2.1 billion in 2008. Earnings dropped 11.7%, to $433.6 million from $490.8 million. Earnings per share fell 8.8%, to $1.65 from $1.81, on fewer shares outstanding....

Non-bank financial companies, such as mutual-fund and insurance firms, are good ways to diversify your Finance-sector holdings. The six we analyze below are leaders in their niche markets. That cuts their risk. As well, their well-known brands will help them grow as the global economy continues to recover. We have a high opinion of all six companies, but only two are buys right now. AMERICAN EXPRESS CO. $41 (New York symbol AXP; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $49.2 billion; Price-to-sales ratio: 1.9; Dividend yield: 1.8%; WSSF Rating: Average) gets most of its revenue from the the fees it charges merchants when consumers use its credit and charge cards. It also provides travel-agency services. American Express set aside $5.3 billion to cover bad loans in 2009. That’s down 8.4% from $5.8 billion in 2008. However, the 2009 figure is still up more than 100% from four years ago....

Mirant Corp., $13.16, symbol MIR on New York (Shares outstanding: 145.1 million; Market cap: $1.9 billion), produces and sells electricity in the United States. The company owns or leases enough capacity to generate about 10,112 megawatts of electricity through coal- and natural-gas fired power plants. Mirant also owns an asset-management and energy-marketing business. Mirant’s earnings per share fell sharply in the latest quarter, to $0.38 from $8.69 a year earlier. The drop was mainly caused by one-time hedging losses and lower electricity prices. The year-earlier figure included hedging gains. Without the one-time gains and losses, Mirant would have earned $1.63 a share, up from $1.15. The shares trade at around 10 times Mirant’s forecast 2010 earnings....

Many U.S. corporations cut their information-technology spending while they waited for the economy to start growing again. At the same time, U.S. consumers were buying less computer equipment as job losses pushed up the unemployment rate and eroded confidence. Spending has started to recover. As well, many U.S. technology companies have increased their international sales. At the same time, the high value of foreign currencies against the U.S. dollar has boosted foreign profit contributions. Still, it would be a mistake to let volatile tech stocks dominate your portfolio. If you want to invest in tech funds, limit your investment to modest quantities. And these funds should only make up a portion of your portfolio’s manufacturing-sector holdings. Above all, only hold funds that focus on established businesses rather than start-ups....

BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $28.28 (Toronto symbol BA.UN: Units outstanding: 127.3 million; Market cap: $3.6 billion; SI Rating: Above Average; Dividend yield: 10.3%) has over 3.1 million telephone customers in Atlantic Canada and rural parts of Ontario and Quebec. BCE owns 44.1% of Bell Aliant. In the three months ended September 30, 2009, the fund’s earnings rose 6.8%, to $0.63 a unit from $0.59 a year earlier. Cash flow per unit rose 15.2%, to $0.91 from $0.79. The gains came from a 7.1% rise in the number of high-speed Internet subscribers, plus ongoing cost cutting. However, revenue fell 2.6%, to $786 million from $807 million, as lower local and long-distance revenue offset strong demand for high-speed Internet and data services. The fund pays a regular monthly distribution of $0.2417 a unit, which gives it an annual yield of 10.3%. It distributed 80% of its cash flow to its unitholders in the latest quarter....

TD RESOURCE FUND $27.63 (CWA Rating: Aggressive) (TD Asset Management, P.O. Box 7500, Station A, Toronto, Ontario, M5W 1P9. Tel: 1-800-386-3757; Web site:www.tdcanadatrust.ca. No load: deal directly with the bank) invests in companies that its managers see as having strong asset bases, proven management and the ability to internally finance growth. The $195.0-million TD Resource Fund’s top stock holdings mostly have Successful Investor Ratings of “Average” or higher. They include EnCana, Suncor Energy, Talisman Energy, Goldcorp, Yamana Gold, TransCanada Corp., BHP Billiton, Barrick Gold, Husky Energy, Chevron, Marathon Oil and Nexen. TD Resource Fund holds 57.1% of its portfolio in Energy and 38.3% in Metals & Minerals....

Although they are still below their 2007/2008 peaks (with the exception of gold, which is now at record highs), resource prices have steadily risen since the start of this year. Most resource companies still need a continued economic recovery to show further growth. But we think the long-term outlook for global resource demand is bright. Meanwhile, we think you should cut your risk in this volatile sector by sticking with profitable, well-established companies that have asset bases they acquired when asset prices were low. Or, invest in mutual funds that hold those stocks. Here are two resource funds that we rate as Aggressive. They expose investors to two different levels of risk, measured by the stocks they hold. We think both have long-term gains ahead....