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Cecilia MoTibor Kolley/The Globe and Mail

Cecilia Mo piloted Fidelity Income Trust Fund to a 46-per-cent return in 2009, but warns not to expect that kind of "spectacular" gain this year.

"If I could get a 6- to 7-per cent yield, which I believe is possible, and have capital appreciation of 5 to 10 per cent, I would be very happy," says the manager with Fidelity Investments Canada.



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Fidelity Income Trust won Lipper awards in the income trust equity group for one and three years ending Dec. 31, 2009. The D series posted an average annual return of 6 per cent over three years, while the S&P/TSX capped income trust index lost 5.9 per cent. Her strategy to reduce risk includes owning a core of "reliable" income trusts with sustainable distributions. But she also buys "fallen angels" with higher reward potential. "They used to be good companies, but ran into bad times," said Ms. Mo.

While she has about 8 per cent in cash to take advantage of opportunities, she is not fussed by Ottawa's plan to tax income trusts as corporations by 2011. She also owns some income trusts that have already converted.

"For me, it is a non-event. [Trusts]have to convert, but it may not have any impact on the yield or their distributions."

She currently favours power income trusts and also some of the real estate investment trusts such as H&R REIT. In the energy sector, she prefers natural gas names rather than the oil plays.

But she is avoiding business trusts which she expects "might have to cut their distribution [on conversion]" because she thinks that possibility is not being priced into the market. Still, Fidelity Income Trust Fund will have to change its name later this year, and broaden its mandate. In future, her fund will be allowed to invest in high dividend-paying U.S. stocks and hedge those securities to Canadian dollars. "You can't call it an income trust fund any more, but we understand the market's appetite for more yield."

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