Tera Funds Performance Update – June 2018

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $106.24-10.1%-12.7%-1.1%-0.5%
Tera High Income Fund$26.034.9%7.2%3.9%5.4%
  • 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

Markets struggled to eke out gains for the month of June.  Led by Energy stocks, the S&P/TSX put in a total return of 1.7% in June, and for the first time in a long time, outperformed the US and global markets.  For the first half of the year, the S&P/TSX had a total return of 1.9%, and continues to lag global markets in general, especially large cap US tech stocks. We continue to maintain a generally cautious stance, particularly with respect to Canada, where the prospects of a “made in Canada” recession grow daily.

A portfolio update meeting is scheduled for Tuesday July 17 at 5:30pm. The venue is 36 Distillery Lane, Suite 440, Toronto.   

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $106.23

The Innovation Fund finished the month at $106.24, flat for the month.

The LP acquired shares in Arista Networks, a new name.  Arista competes with Cisco, but reminds me of Cisco 20 years ago; innovative, focused and executing well.  This brings large US listed names to 6 representing 12% of the fund.   They performed well in the month with AMD up 9%, Iqiyi (Chinese Netflix) up 27% and Intel up 11%.  This asset class will continue to grow as the public assets in the portfolio are diversified.  Canadian based ViQ was down in the month, balancing the other gains in the portfolio.

The majority of the private company assets are Vivecrop and Pesa.  Both are achieving good year over year growth.  We don’t expect any liquidity event in 2018, but we do expect both to increase in value based on their rate of growth and favourable execution.   The value for these private assets remain unchanged in the fund year to date.

At month end, the LP was invested in 60% public listed names, 37% privates and 3% cash.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $26.03
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 High Income Fund was up 0.6% in June, and since inception in mid-2008, has generated an annualized return of 6.1% (after-fees), well in excess of the S&P/TSX return of 5.0%, 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.

June performance was led by our Pipeline holdings, Enbridge (up 17%) and AltaGas (up 7%).  Both companies received favourable regulatory decisions and both successfully sold assets at prices above street consensus, with the proceeds being applied to reduce balance sheet debt. Most other holdings saw small losses.

As we have noted in previous monthly comments, we remain increasingly cautious on the outlook for the Canadian economy.  During the month we added a new Enbridge preferred share which is denominated in $US and pays a 6% yield in $US, a better holding than $US cash.  We also added to our European Commercial REIT holdings (9% yield).  More domestically, we reduced holdings in VersaBank and redeployed the proceeds into Canada’s leading entertainment company, Cineplex Inc. (6% yield).

At month-end the holdings of the fund can be broken down as follows: Cash 6%, Debt 6%, Prefs 24%, and Equities 64%.  At month-end the yield on the Fund was 5.7%, now near the high end of our yield target range of 5-6%.

*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.