Tera Funds Performance Update – April 2018

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $110.97-6.0%-7.4%1.8%-0.4%
S&P/TSX Tech12.1%18.3%12.6%17.4%
Tera High Income Fund$25.031.0%4.6%1.7%5.8%
  • 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

April saw a return to slightly positive returns for major global markets. For the year-to-date, however, major markets, with the exception of NASDQ, are all down. The TSX, down 2.8% for the year, continues to be one of the worst markets in the world. One glimmer of hope for the domestic market is the fact that energy shares are finally beginning to show some life. For the year, energy stocks are actually outperforming Canadian financials. Turbulent markets have created opportunities. We hold cash to take advantage of near-term market disappointments.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $110.97

The Innovation Fund finished the month at $110.97 up 2% for the month.

The U.S. names, comprising a small, but growing portion of the LP drove a modest return. Intel up 13%, Iqiyi up 11%, and AMD up 8%. The hedging Nasdaq inverse units lost value as the index rose in the month. The large ViQ holding did not change materially in the month.

The goal continues to be diversifying out of the illiquid investments into cash and public securities. The private companies are conservatively valued based on IFRS and competitive analysis. There are six remaining private companies, all maturing and moving closer to providing liquidity. It has been over 2 years since the last private company, Solace, was acquired.   We look forward to more activity on this front.

There was no change to the value of the private investments.

At month end, the LP was invested in 67% public listed names, 30% privates and 3% cash.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $25.03
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 down 0.2%, and since inception in mid-2008, has generated an annualized return of 5.8% (after-fees), well in excess of the S&P/TSX return of 4.5%, with significantly more stability than stocks in general. 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.

April saw little in the way of notable performance. Altagas (up 4%) and Fiera Capital (up 3%) were the largest positive contributors to the fund, while Chorus Aviation (down 7%), Altagas Prefs (down 5%), and Enbridge (down 4%), led to the downside. It is interesting to see the Altagas diversion (common up, prefs down), but also nice to know that we are getting very nice yields in both. As we noted last month, “in turbulent times such as these we focus more on the income that our companies are generating than the day-to-day market gyrations.” We sold holdings of Manulife Preferred shares at a slight gain.

At month-end the holdings of the fund can be broken down as follows: Cash 7%, Debt 7%, Prefs 25%, and Equities 61%. At month-end the yield on the Fund was 5.0%, at the low end of our yield target range of 5-6%.

With a positive return year-to-date, we are pleased that the Fund has done its job, outperforming the TSX (down 3.7%), bonds (down 0.8%) and preferred stocks (down0.6%).

Lyle was on BNN in late March. Here is a good clip of how we are looking at income-oriented names.

https://www.bnn.ca/video/a-tough-search-for-income-in-today-s-market-vestcap-s-stein~1351697

*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.