Tera Funds Performance Update – June 2019

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $99.470.0%-6.3%-2.7%-1.0%
Class A$30.5912.2%
Class B$68.88-4.6%
Tera High Income Fund$24.767.6%0.7%5.6%1.9%
  • 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

The US Federal Reserve changed its interest rate tune in June, and markets responded with an enthusiastic BUY, with large cap US equities leading the global pack as market players once-again adopted a FOMO “Fear of Missing Out” strategy before quarter end.  In liquidity-driven times, Canada underperforms, and that was the case in June. Up 2%, the S&P/TSX lagged US markets by 4-5%.  Like most market participants, the significant change in Fed policy from 9 months ago (three more rate increases) to today (three rate reductions) has caught us by surprise.  Global slowdown fears, debt worries, and trade imbalances are being set aside in hopes that Central Banks will once again come to the rescue, and the Fed’s behavior confirmed that view.  We remain skeptical about this “goldilocks” view of the world.  To us, the porridge is a bit too cold and the fire is running out. We continue to remain cautious.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $99.47

The Innovation Fund finished the month at $99.47 representing flat performance year to date.

The Class A units were up 4.2% in the month.  Monthly leaders were Ciena up 18%, AMD, up 11% and Applied Materials up 16%.  This was a rapid and strong rebound from May. The Google holding did not participate in the market rally as it continues to be weighed down by relatively poor operating results in its last quarter. The LP exercised the Burcon right units bringing the weight in the A units up to 4%.  The A unit monthly results would have been even stronger but 98% of the A units are invested in US$ and the strength of the Canadian dollar dampened reported results.

The Class B units were up 2.2% with an uptick in ViQ pricing.  The B units are holding 13% cash.  The private holding pricing remained unchanged in the month.

At month end, the LP’s weighting was30% Class A units and 70% in Class Bunits.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $24.76
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 declined 0.1% in June and it is up 7.6% for the year.  Since inception over ten years ago, has generated an annualized return of 5.6% (after-fees), nicely ahead of the S&P/TSX return of 4.9%, 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 portfolio performance was essentially a repeat of May.  The “safe-haven” Utility holdings in Northland Power and Algonquin Power were both up while the Fund’s Energy holdings (Vermillion and Whitecap), were again the biggest laggards.  We continue to view our oil share holdings as the ultimate contrarian play – markets hate Canada, markets hate Energy and Canadian Energy stocks have been avoided like the plague. We added to both Vermillion and Whitecap in June.

Last month we noted our Buy Yield Cheaply approach to cash deployment.  With yields close to 10%, the 3% incremental purchases of Vermillion and Whitecap increased the portfolio yield from 4.9% to 5.2%.  We will continue to be selective in deploying cash.

We go into July holding 13% Cash, 6% Debt, 31% Preferred and 50% Equities.  The yield on the Fund is now 5.2%.  Our goal is to utilize the cash to bring the Fund’s yield into the 5.5-6.0% range.

*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.