REITS LOOK LIKE BARGAINS

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  One of the secrets of great investors is that they buy when prices are cheap – or, as Sir John Templeton once put it, “when there’s blood on the floor”.

By that criterion, Canada’s income trust market is a great place to put your money right now. Some of the prices of high-quality trusts are at levels we haven’t seen for a long time. All things being equal, investors would be snapping them up.

The problem, of course, is that all things are not equal, thanks to Finance Minister Ralph Goodale. When he dropped his “no more tax rulings” bombshell on Sept. 19, he sent the trust market into a tailspin that continues to this day. Lately, he’s been trying to lay the blame for the precipitous slide on everything from higher interest rates to lower oil prices but the smokescreen won’t work. The reality is that you can chart the decline almost from the moment he issued his decree. With a few words, he managed to wipe out more than $20 billion in market valuation! That’s not an easy thing to do but Mr. Goodale accomplished it, to his everlasting discredit.

But there’s a silver lining to every cloud, or so goes the cliché. In this case, it’s cheap prices. The catch is the risk involved. No one knows exactly how great it is so the trust market is wallowing in uncertainty.

If you’re the brave type, it could be an opportunity to scoop up some tremendous values. The downside is that if the Finance Minister decides to clobber the trusts, the market will fall even more.

To my mind, the best bet at present is the real estate investment trusts (REITs). Prices are starting to recover but in many cases they are still way down from where they were on Sept. 19. The reason I like REITs is that I don’t think the Finance Minister will touch them. They have been around a long time and the principle of holding real estate in a trust structure is well-established. Even the United States has a thriving REIT market.

Moreover, when Mr. Goodale made his first, abortive, attempt at showing the growth of the trust sector by limiting pension plan ownership, REITs were specifically exempted, along with energy trusts. I would be surprised if he changed that policy now.

There are lots of interesting REITs available. Our favorite for many years has been RioCan REIT (TSX: REI.UN), which was originally recommended at $10.90 in the Internet Wealth Builder in 1997. It closed on Nov. 11 at $20.90. The price held up well during the slide so we don’t see it as a great bargain at this level.

Instead, we prefer Royal Host REIT (TSX: RYL.UN), which we feel has greater profit potential at the current price of $5.85. It has been recommended in both the Internet Wealth Builder and The Income Investor.

Another one we are watching but have not formally recommended yet is Retirement Residences REIT (TSX: RRR.UN). This one has a troubled history and is still not out of the woods but it offers a yield of 11% on a monthly distribution of 7c a unit and management seems to be getting it back on track. Aggressive investors may want to consider it.

There are other good values in this sector and we expect to make new buy recommendations in our newsletters soon. If you are in the mood for a little bargain-hunting, REITs are a good place to start.

SPECIAL OF THE MONTH: FUND INVESTORS

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  Each month we try to include one special offer to encourage Investing Today readers to try our subscription products. Mutual fund sales are on the rise again so for November, we are offering a Fund Investors Special: a three-month trial of the Mutual Funds Update newsletter (e-mail edition) and our On-Line Buyer’s Guide to Mutual Funds for only $29.95 plus tax.

And as a special bonus, we’ll send you a copy of Hidden Gems 2005, our Special Report on the best small mutual fund companies in Canada. It retails for $24.95 but it’s yours absolutely free if you take advantage of our offer.

To order call our toll-free Customer Service line at 1-888-287-8229 during business hours Monday to Friday. Katya or Laur will be glad to help you. Be sure to mention that you are ordering the November Fund Investors Special.

If you prefer to order on line, go to: http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=560

Don’t wait. This offer is only open until midnight, Nov. 30. Order now and have all this valuable information at your fingertips during RRSP season.

A ROUGH RIDE FOR TRUST FUNDS

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  If you own any income trust mutual funds, you are almost certainly aware of the rough water they’ve been going through. After the Sept. 19 announcement by Finance Minister Goodale that advance tax rulings on trust conversions were being suspended, the market got slammed.

Obviously, mutual funds that invest in income trusts didn’t escape. The average fund in the Canadian Income Trusts category lost 7.3% in October. Some fared even worse but others escaped with relatively minor damage. What made the difference? Check out our analysis at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2382

WHY THE TRUSTS SHOULD BE LEFT ALONE

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  While we’re on the subject of trusts, we came across a very good analysis of the entire situation written by two lawyers from the firm of Stikeman Elliott. They aren’t exactly unbiased since their company does a lot of business in the trust sector. Nonetheless, their in-depth examination of the problem is worth reading. Details at http://www.buildingwealth.ca/News/Featuredetails.cfm?NewsletterID=2365

PACKAGE DEALS

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  We sometimes get inquiries from people wanting to subscribe to our services asking how to get the best deal. There’s no “one size fits all” answer because it depends on what you’re looking for. That’s why we devised several packages that bundle together different products and services. You can choose the one that works best for you and save money in the process. Here’s a brief run-down of each with a url you can visit for more information.

Bronze Package. Best suited for mutual fund investors. Includes a one-year subscription to Mutual Funds Update, one year of unlimited access to the On-Line Buyer’s Guide to Mutual Funds, and e-mail delivery of all our Mutual Fund Special Reports. You save $20 off the regular price. http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=297

Silver Package. A valuable set of financial tools. Includes a one-year subscription to Mutual Funds Update, a one-year subscription to The Income Investor, one year of unlimited access to the On-Line Buyer’s Guide to Mutual Funds, and e-mail delivery of all our Mutual Fund Special Reports. You save $30 off the regular price. http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=298

Gold Package. A great choice for investors who are interested in both mutual funds and stocks. Includes one year of membership in our flagship Internet Wealth Builder newsletter (published weekly), a one-year subscription to Mutual Funds Update, one year of unlimited access to the On-Line Buyer’s Guide to Mutual Funds, and e-mail delivery of all our Mutual Fund Special Reports. You save $40 off the regular price. http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=299

Diamond Package. This package will work especially well for income-oriented investors. Includes one year of membership in the Internet Wealth Builder, a one-year subscription to The Income Investor, one year of unlimited access to the On-Line Buyer’s Guide to Mutual Funds, and e-mail delivery of all our Mutual Fund Special Reports. You save $40 off the regular price. http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=528

Platinum Package. This is by far the most popular choice with our readers. Think of it as the information equivalent of an all-dressed pizza. Includes one year of membership in the Internet Wealth Builder, a one-year subscription to The Income Investor, a one-year subscription to Mutual Funds Update, one year of unlimited access to the On-Line Buyer’s Guide to Mutual Funds, and e-mail delivery of all our Mutual Fund Special Reports. You save $60 off the regular price. http://www.buildingwealth.ca/bookstore/productdetail.cfm?product_id=381

“INTENSE DESPAIR”

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  I received an e-mail last week from a woman who described herself as being in “intense despair” over her financial situation. “I have a very little income, not even enough for rent, also a car lease payment and some credit card payments,” she wrote. She has $16,000 in a locked-in RRSP that would help greatly but she can’t get at it. What should she do? You can read my answer to her at http://www.buildingwealth.ca/qa.cfm

Other topics this week include income trusts, RESPs, advice to a young investor, and RRSP overcontributions.

Your questions are always welcome. Use the link on the page to send me an e-mail with your query.

QUIZMAS TIME AGAIN

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  If you’re looking for a change of pace from the world of high finance, have some fun by visiting our Quizmas website at www.quizmas.net

Quizmas is the name of the book that I wrote last year with my daughter Deborah. It’s a treasury of Christmas trivia that’s fun for everyone in the family, from toddlers to grandparents. Penguin Canada is bringing it back again this year and Plume Books, an imprint of Penguin, is publishing it in the U.S.

The Quizmas website contains all sorts of features I’m sure you’ll enjoy. Here are a few:

A Christmas Quiz – Test your knowledge with several sample questions from the book.

The Quizmas Contest – Your chance to win a free copy of Quizmas.

Christmas Memories –Our readers tell us about their own memorable Christmases past. Some of the stories are truly inspiring. Send in your own.

You can also shop for the book and order our special Quizmas cards on the site. Drop by soon.

That’s all for this month. Remember to send a copy of this issue of Investing Today to your friends or anyone you think might be interested. If you have received this copy from someone and would like to be on our regular distribution list, go to http://www.gordonpape.com and click on the Investing Today banner at the top to sign up.

Best regards, Gordon Pape