Tera Funds Performance Update – July 2018

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $107.60-8.9%-14.8%0.3%-0.3%
Tera High Income Fund$26.075.2%10.7%5.2%4.8%
  • 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 rebounded in July as visions of sustained growth overcame concerns of a global trade war. Unfortunately, as has been the case when markets turn towards growth, Canada underperformed.  With a 1% total return, the S&P/TSX lagged global markets which returned 2%-3%. For the Year, the S&P/TSX is up 3%.  Fixed income markets suffered, with long bonds returning -1.7% in July and -0.8% for the year-to-date.  While in the middle of earnings report season, we see some cracks appearing in some of the market darlings.  We continue to be cautious.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $107.60

The Innovation Fund finished the month at $107.60, up 1.3%.

The LP positions acquired earlier this year continue to do well led by AMD (up 29%), Microsoft (up 14%), Iqiyi (up 65%), and Opentext (up 7%).   Additional new names in the month include Huya, Byd and Cisco.  Both Huya and Byd are Chinese companies dominating the domestic online gaming/streaming and electric vehicle/battery production markets.  Standing for Build your Dreams, BYD makes the largest number of electric vehicles in the world (not Tesla).   ViQ, has struggled this year materially pulling back following a strong 2017.  The market is looking forward to a successful launch of their new AI solutions.   The LP continues to diversify into new holdings.

We remain very satisfied with the year to date performance of the private portfolio.  While the prices of these companies do not change very often in the portfolio, it is a good thing to see the rapid increase in 2018 revenues.   The largest private holdings remain ViveCrop, Pesa and Solace.

At month end, the LP was invested in 54% public listed names, 43% privates and 3% cash.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $26.07
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 0.2% in July, 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. July marked the 10-year anniversary of Fund!  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.

July portfolio performance was led by Parkland Fuel, which put in an exceptional Q2 earnings report. WPT Industrial REIT, a US-based warehouse operator, was next in line.  We view the holding as an alternative way to play the Amazon distribution theme.  Our preferred shares had a good month, led by Atlantic Power and Altagas.

As we have noted in previous monthly comments, we remain increasingly cautious on the outlook for the Canadian economy.  We continue to look for beaten-down names with not only a solid current yield but the opportunity to grow the distribution paid to us.  In July we made no transactions – lots of window shopping, but no action.

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 5.5%.

*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.