Tera Funds Performance Update – January 2019

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $99.750.3%-12.6%-6.5%-0.5%
Class A$27.59
Class B$72.16
Tera High Income Fund$24.355.8%2.3%6.8%5.3%
  • See Bottom Note for Disclosure: 3 and 5 yr are annual compounded returns
  • Tera Income Fund commenced July 31, 2008; Distributions: ’08- $0.795; ’09 – $1.22; ’10-$1.45; ’11-$1.45;’12-$1.30; ’13-$1.30; 14-$3.30; 15-$1.35; 16-$1.35; 17-$1.35; 18-$1.35

Market Commentary

January saw a significant market turnaround that took all global markets higher, with Canada one of the better performing global markets, even before the near 4% appreciation in the $C. The highlight of the month, and the force behind the market moves, was US Fed Chairman Jay Powell’s “tossing in the towel” on expectations for further US rate increases; current expectations now are for no rate increases in 2019, with over 20% now seeing a rate decrease in 2019!  While a benign Fed is always a positive for liquidity flows, we are more cautious. Should economies, which are now showing slowing trends, revert to more normal growth we would not rule out a Fed rate increase.  Should economies continue to slow, corporate earnings, which are already being marked down, could suffer further.  We look for bargains which the volatility has created. We have cash waiting to be deployed.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $99.75

The Innovation Fund finished the month at $99.75 up 0.3% for the month.

The strong rebound in January markets saw the Class A units rise 5% ($US) and the Class B units hold steady for the month.  Within the Class A units, all 20 U.S. holdings were up strongly, however the performance was impacted both by the stronger Cdn$ exchange rate and the Canadian holding Maxar.  Maxar’s value dropped significantly following an unexpected satellite gyros failure in orbit after working perfectly since launch two years ago.  While insured, this was a leading imaging satellite for the company.  This was more than offset with significant increases including Adobe (up 9%), Google (up 8%), Amazon (up 14%), Iqiyi (up 34%) and Teva (up 28%).

The Class B units were flat as they hold the illiquid holdings.  As these holdings have liquidity events, the proceeds will create additional redeemable Class A units for the LP holders.  The largest private holdings remain ViveCrop and PESA.

At month end, the LP’s weighting wasin 28% Class A units and 72% in Class B units.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $24.35
Distributions: (’18-$1.35 ’17-$1.35: ’16-$1.35 ’15-$1.35: ’14-$3.30 ’12/13-$1.30; ’11-$1.45; ’10-$1.45; ’09-$1.22; ’08-$0.80)

The Tera High Income Fund returned 5.8% in January, and since inception over ten years ago, has generated an annualized return of 5.6% (after-fees), well in excess of the S&P/TSX return of 4.4%, with significantly more stability. Despite the current low-yield environment, we continue to target an annual total return of 6%-7% for the Fund. Over 90% of the Fund’s income comes from dividends, which offer significant tax advantages compared to interest income.

January portfolio performance was led by strong recoveries in our smaller cap names, reversing the pain they felt in the December selloff.  Chorus Aviation was up 25%, WPT Industrial REIT gained 16% and European Commercial REIT and Enbridge each gained 13%.  Only our Preferred shares saw losses, and none was more than 3%. We did not do any transactions in January, and finish the month with 11% Cash, down from 25% in November.  The yield on your portfolio is 5.3%, which we expect to rise as cash is deployed and as our holdings increase their payouts.  For example, Enbridge has targeted a 10% dividend increase for later this year. European Commercial REIT announced a $0.50 payout on its restructuring into a much larger apartment-focused company. While its yield will fall as a result, the bird-in-the-hand cash is nice to have.

We go into February holding 11% Cash, 6% Debt, 23% Preferreds and 60% Equities.  We expect to raise the current yield on the fund to close to 6% (5.4% today) as our cash is deployed.

*Commissions, management fees, performance fees and expenses all may be associated with investment funds. Please read the limited partnership/trust agreements before investing. The returns are the simple rates of return (1 month, year to date) or the historical annual compounded total returns (2 yr, 3 yr and 5yr). All returns are net of fees and in Cdn$. Rates of return shown do not take into account income taxes payable by any security holder or other charges that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.