Tera Funds Performance Update – February 2019

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $100.140.7%-12.2%-3.9%-1.6%
Class A$29.37
Class B$70.77
Tera High Income Fund$24.657.1%4.0%7.3%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

February saw markets continue the winning ways of January, with US markets led by small caps and technology shares. Canadian markets also continued to perform well, as a “risk-on” attitude captured an increasing share of investor mind set.  With the perception that the Fed is on hold (like his predecessors Fed Chair Powell now has a “put” named after him!) and that trade issues with China will be resolved, the love affair with equities has been rekindled following the scare of Q4 2018.  While we are less cautious than previously (we deployed cash in 019), we are very much aware of how markets have become increasingly sensitive to any perceived shifts in the economic winds. We found bargains, and took advantage of them; for example, the High Income Fund continues to pick up yield at very cheap costs.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $100.14

The Innovation Fund finished the month at $100.14 up 0.4% for the month.

The Class A units were up 6.4% for the month based on good participation across the holdings. Strength in Arista (up 33%), Ciena (up 12%), Intel (up 12%), Iqiyi (up 35%) all rebounded from their December lows. Additional shares were acquired in existing positions of AMD, Ciena and Huya.   New positions were taken in Scandinavian companies Nokia and Ericsson to increase the asset allocation of networking and telecom companies.  The broad theme of this investment is leveraging telcom companies that should benefit from the crackdown on Chinese company Huawei 5G technology.  Within this theme, the LP also holds Ciena that is seeing stronger results.

The Class B units were down 2% in the month.  ViveCrop successfully completed a financing to fund the inventory build for the 2019 season. The LP participated to maintain its pro rata position.   PESA also successfully navigated the US Government shutdown that caused a delay of 6 weeks in Q1 procurement processing.

At month end, the LP’s weighting wasin 30% Class A units and 70% in Class B units.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $24.65
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 returned 1.2% in February, and since inception over ten years ago, has generated an annualized return of 5.7% (after-fees), well in excess of the S&P/TSX return of 4.7%, 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.

February portfolio performance was led by nice gains in our holdings of Altagas preferred shares (3 issues held) Enbridge preferred shares, and Chorus Aviation.  Altagas benefitted from an increasing market awareness that it is on top of its balance sheet, and Chorus benefitted from extending its capacity arrangement with Air Canada.  On the downside, WPT Industrial REIT fell 5%.

During the month, as noted above, Vive Crop Protection recapitalized its balance sheet, and as a result, our holdings of convertible notes were converted into equity.  As part of the recapitalization, we participated in a rights offering of the company which leaves us holding common shares only. In addition to Vive, we added to our position in Chorus Aviation (6.6% yield) and bought two issues of Husky preferred shares (5.8% yield).

We go into March holding 4% Cash, 5% Debt, 29% Preferreds and 62% Equities.  The yield on the Fund is now 5.7%, a result of the high-yield purchases. With cash now fully deployed, our bird-in-the-hand yield represents 95% of our minimum target return.

*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.