Tera Funds Performance Update – December 2017

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $118.080.1%0.1%4.6%0.5%
S&P/TSX Tech17.5%17.5%11.9%18.4%
Tera High Income Fund$26.166.3%6.3%2.2%4.0%
  • 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

Market Commentary

Global equity markets put in respectable gains in December and finished 2017 on a very strong note. Plagued by its Energy dependency, Canada continued to lag its global peers. Where the Dow and Nasdaq saw 25%+ returns, the S&P/TSX returned only 9%, with small and mid-caps performing even worse. The exuberant momentum which catapulted US stocks was clearly checked at the border! On the interest rate front, the Canadian bond universe returned 2.5% as the rising rate environment finally took its toll. In a world where governments are doing whatever they can to get inflation over 2%, we find no logic in holding bonds which, after-tax, lose purchasing power. We were cautious going through 2017 and see no reason to get caught up in todays euphoria.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $118.08

The Innovation Fund finished the month at $118.08 flat for the year.

Public technology stocks performed very strongly during the year, capping a multi year rally in a healthy style.   Indeed, they outperformed our expectations heading into 2017. The LP had a strong performance from the public listed side of the portfolio up 25% for the year. The offset was the unrealized losses from lowering the private portfolio valuations a total of 32% during the year. This resulted in the weight of the public listed holdings plus cash rising to 72%. Cash ended the year at 7.5% of total assets.

There were no liquidity events in the private portfolio during the year. The top three holdings in the private portfolio remain ViveCrop, Pesa, and Senator.

Heading into 2018, the LP is close to the target of 75/25 public private allocation. While the private holdings have been held for a long time, we remain confident of successful liquidity events in the portfolio.   We expect to see strong buy back plans in 2018, utilizing the tax break dollars to reduce the public float, thereby increasing income per share. While much of this action is already priced into the technology market, as long as dollars continue to flow into the sector, upward pressure will continue.

At month end, the LP was invested in 65% public listed names, 28% privates and 7% cash.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $26.16
Distributions: (’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 declined 0.5% in December, and since inception in mid-2008, has generated an annualized return of 6.7% (after-fees), well in excess of the S&P/TSX return of 5.7%, and 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.

December performance was again led by Dream Global REIT, the European office landlord. In addition to Dream, we also own European Commercial REIT. Both operate office properties in Germany and the Netherlands and provide unique diversification opportunities. On the negative side, WPT Industrial REIT saw the largest decline. Since year-end, WPT has rallied on the take-over offer for Pure Industrial REIT, and VersaBank, one of our largest holdings, has experienced a significant rerating.

In December we sold the Nasdaq inverse position for tax-loss purposes.

At month-end the holdings of the fund can be broken down as follows: Cash 18%, Debt 7%, Prefs 32%, and Equities 43%. At month-end the yield on the Fund was 4.2%. While low by historical standards, we anticipate a yield pick-up in 2018 as 1-cash is deployed and 2-Versabank (paltry yield) is replaced by a better income generator.

As noted in the November report, the Fund will again be distributing $1.35 per unit. Cheques will be mailed on January 15, 2018.

 

The Tera Funds are open to new subscriptions (accredited investors only). Please contact Tera Capital at 416-368-8372 or the website at www.teracap.com for more information, or contact your broker/investment advisor directly.

 

*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.