Tera Funds Performance Update – February 2018

  Price YTD 1 Year 3 Year 5 Year
Tera Global Innovation $114.09-3.4%-2.3%0.7%0.1%
S&P/TSX Tech11.1%27.6%11.5%20.0%
Tera High Income Fund$25.101.2%7.6%2.4%5.9%
  • 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

February saw losses across global equity markets, with most markets down 4% or so in local currencies. Bucking the trend, the S&P/TSX index declined only 3%, though the index continues to show a loss for the year-to-date, down 4.4%. Technology stocks continued to outpace major market indices as the desire to own perceived growth continues to dominate market psychology. Fixed income markets were flat-to-down on the month, with long-dated bonds showing the worst performance, off 1.6% for the year. With markets increasingly watching for changes to inflationary expectations, the good earnings numbers printed for Q4 2017 couldn’t carry the day. As the case throughout 2017, we see no reason to change from our cautious stance.

Tera Global Innovation Fund
Howard Sutton – Portfolio Manager
Price: $114.09

The Innovation Fund finished the month at $114.09 down 1.1% for the month.

The Big Cap US holdings Microsoft, Google, and AMD (Graphic Processing Units for Artificial Intelligence and BlockChain) pulled back slightly in the month but have performed well overall year to date. Intel was up slightly in a down Nasdaq month. The hedging position relative to the Nasdaq resulted in a positive US result. The 1.8% drop in the largest position, ViQ had the largest impact on the portfolio.

Activity in Military and Government markets is picking up. The expectation of passing a significant increase to the U.S. military budget will result in new projects, that up to now, have not been funded. This will be positive for both ViQ and Pesa. Both have compelling solutions in Government and Military markets.

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

At month end, the LP was invested in 68% public listed names, 29% privates and 3% cash.

Tera High Income Fund
Lyle Stein – Portfolio Manager
Price: $25.10
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 declined 0.4% in February, and since inception in mid-2008, has generated an annualized return of 5.9% (after-fees), well in excess of the S&P/TSX return of 4.4%, 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.

January performance was led by European Commercial REIT, which was up 6%. A laggard in 2017, the market appears to be paying attention to its 9% yield and German/Netherlands asset base. Your fund holds just over 20% of its assets in REIT structures, all of which hold properties outside of Canada. We like the diversification away from what we believe will be a poor performing $C. Enbridge Inc was the worst performer, down 6% over the month. We added to our position to take advantage of its >6% yield. We also added to Altagas to take advantage of the 9% yield it was offering. A new position was initiated in Fiera Capital, a growth opportunity in the asset management business which also pays a 5.8% yield. During the month we traded CCL Industries and Nutrien (formerly Potash Corp), both at nice gains. Early in the month we sold one of the TransCanada preferred positions and trimmed holdings in VersaBank and Parkland Industries as part of an asset mix adjustment.

At month-end the holdings of the fund can be broken down as follows: Cash 10%, Debt 7%, Prefs 28%, and Equities 55%. At month-end the yield on the Fund was 5.1%. As we noted last month, our goal was to get the current income yield into the 5-6% range, and we closed the month at the bottom of the range.

All-in-all, we weathered the February market turbulence reasonably well.


*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.