Income trusts and index changes: income trusts may be coming to an index near you

Money Digest, Nov, 2002

Income trusts have become one of the most actively traded investments in the Toronto Stock Exchange. Their total market capitalization has now surpassed $40 billion. In fact, the trading is so active that some of the trusts are likely to make it onto the TSX benchmark index next year.

Why is this important? When a security is included in the TSX index, it is automatically bought by mutual funds and investors that invest in index funds. So when a security is included in an index, the demand for it increases immediately and this tends to push up the price, at least at the early stages of its being included in the index.

Although there is no guarantee that any of these trusts will be included in the index, the current speculation is that they would be. Such speculation by itself can the push the prices up.