Investors who want to navigate the uncertain landscape of income trusts should focus on undervalued names with smaller capitalization, advise analysts at Canaccord Capital Inc.
Royalty trust analyst Bruce McDonald and his colleagues note that the pace of income trust conversions accelerated through September until the government indefinitely postponed advance tax rulings on Sept. 19.
While all trust prices will be influenced by political uncertainty, they add, only the larger-cap names will trade on news that causes big moves in the indexes.
The "under the radar" trusts with growth opportunities and the potential to increase distributions have the potential to outperform the asset class as a whole, they say.
The Canaccord team recommends that investors steel themselves to buy -- rather than sell -- on weakness.
Canaccord's top picks among diversified trusts are PDM Royalties Income Fund and Golf Town Income Fund.
In the power and pipeline group, Canaccord analysts like Algonquin Power Income Fund, Calpine Power Income Fund and Great Lakes Hydro Income Fund.
Recommended royalty trusts are Acclaim Energy Trust, Baytex Energy Trust, Canadian Oil Sands Trust, StarPoint Energy Trust, Sequoia Oil & Gas Trust and Thunder Energy Trust.
On the energy service list, Builders Energy Services Income Trust and Peak Energy Services Income Trust are top picks.
© The Globe and Mail
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