Tera Funds Performance Update – May 2018

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $106.68-6.0%-7.4%1.8%-0.4%
Tera High Income Fund$25.884.3%6.4%3.1%4.4%
  • 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

Markets came back to life in May, as monthly gains negated the year-to-date losses seen in most equity markets at the end of April.  With growth once again being emphasized, NASDAQ and US small caps led the way. While the S&P/TSX was up on the month, it remains mired in the negative return area for 2018.  The relative performance of the Canadian economy has been weakening, and that has been a drag on our domestic market, particularly the heavyweight financial sector.  There was no reversal of the “surprise” of 2018 – despite an 11% rise in the price of oil, our Energy stocks are down, as well as the $C. Looking ahead, our biggest concern is the potential of a “made in Canada” recession, caused by energy, housing and government deficits.

The annual meeting update is scheduled for Tuesday July 17 at 5:30pm. The venue is 36 Distillery Lane, Suite 440, Toronto.   

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $106.68

The Innovation Fund finished the month at $106.68 down 3.9% for the month.

The month was a strong month for all the listed holdings, except for ViQ, the largest holding.  ViQ was down a large 15%, dragging the entire portfolio lower.  There was no news precipitating the pullback on light volume.  The execution of the business plan remains intact.  Partially offsetting the loss were the US investments. In the month alone, the new holding Iqiyi was up 40%, Intel up 7%, AMD up 26% and Microsoft up 6%.  Large cap U.S. technology names are red hot.  We also continue to see, as anticipated, a dramatic increase in stock buybacks with proceeds from the tax cut. A new name in the month is Opentext.  Tera first invested many years ago prior to Opentext’s IPO.  We did well back then, and have lately rejoined as shareholders. Indeed, Opentext has purchased many companies over the years to help fuel its growth. It recently purchased a division of DELL, that had acquired EMC, that had purchased Documentum, that had purchased a Tera start-up in 2002.  A big circle of investments.

The private companies are having a strong first half of the year.  All are experiencing year over year growth in revenues which should help position them towards an improved liquidity event. The goal continues to be diversifying out of the illiquid investments into cash and public securities.

The Global Innovation LP has removed the S&P/TSX Tech Index from the results summary as a benchmark following advice and direction that it was not a comparable index based on it’s construction.

At month end, the LP was invested in 62% public listed names, 36% privates and 2% cash.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $25.88
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 3.4% in May, 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 4.8%, 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.

May performance was pretty much across all holdings.  All but one of the preferred share holdings were up, and only two equites turned in losses.  On the positive side, our two largest holdings also turned in the strongest performance.  WPT Industrial REIT saw a 9% gain, while Dream Global REIT was up 8%. These two names now represent 17% of the Fund.

Reflecting our concerns about the domestic economy, we have made a conscious effort to reduce the Fund’s exposure to domestic assets.  In addition to the 17% holdings of WPT (US) and Dream Global (Europe), the Fund also holds American Hotel Properties (US-5%) and European Commercial REIT (Europe-3%), making non-Canadian exposure 25%. Indirectly, Northland Power has its largest operations in the European offshore wind business.

There were no transactions in May.

At month-end the holdings of the fund can be broken down as follows: Cash 7%, Debt 7%, Prefs 24%, and Equities 62%.  At month-end the yield on the Fund was 4.9%, at the low end of our yield target range of 5-6%.

The annual meeting update is on Tuesday July 17 at 5:30pm. The venue is 36 Distillery Lane, Suite 440, Toronto.   

*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.